Comatose refineries: New NNPC for unveiling to raise N1.24trn subsidy monthly for fuel importation
…As non performing refineries under Buhari gulp N560bn in seven years
By Gloria Akudoro, Abuja.
Investigations have revealed that the new NNPC Limited Liability Company to be unveiled by President Muhammadu Buhari today will be saddled with the responsibility of raising N1.243trillion as subsidy every month on importation of Premium Motor Spirit ( PMS).
This follows the current amount being spent monthly as subsidy by the Federal Government on PMS popularly called petrol, consumed in Nigeria is currently above N600 per litre according downstream operators
Also, the latest PMS evacuation data obtained from the Nigerian National Petroleum Company Limited shows that the year-to-date daily consumption of petrol in Nigeria was 66.8 million litres.
Going by the above figure from the NNPC, it, therefore, implies that the Federal Government spends about N40.1bn daily when subsidising every litre of petrol consumed in Nigeria by at least N600. This shows that profit and dividend payment of the new NNPC to be unveiled will be affected by interest on loans for subsidy fund to be sourced from banks pending reimbursement by the Federal Government.
The unveiling of the Nigerian National Petroleum Company Limited is slated for today July 19 as President Muhammadu Buhari and the Finance Minister, Mrs Zainab Ahmed have signed the transfer of assets documents from NNPC as a corporation to the limited version created by the Petroleum Industry Act(PIA).
This new development simply translate that all such assets, interests and liabilities of the Corporation has been transferred to NNPC Limited in line with the provisions of the Petroleum Industry Act (PIA).
This implies that the new face of NNPC will inherit comatose refineries, that on how to make the comatose refineries the NNPC’s latest funding performance report, the firm stated that N8.33 billion was spent monthly for a period of 12 months beginning from January to December 2021 on refinery rehabilitation.This translates to N100 billion in 2021.
Findings revealed that the Nigeria’s refineries gulped almost $5.2 billion (about N2 trillion) as Turn Around Maintenance (TAM) cost in 25 years. The findings showed that to service the refineries, the Federal Government expended $216 million between 1993 and 1998, $92million between 1998 and 1999, $1.57 billion between 1999 and 2007, $200 million in 2009, $900 million in 2012, $1.6 billion in 2013, $550 million in 2015 and $50 million in 2019.
This shows that an addition of N100 billion in 2021 on the four refineries maintenance will raise total expenditure to N2.1 trillion in 25 years. Under the seven years administration of President Muhammadu Buhari, with the figure of N92 billion being spent annually between 2015 and 2020 as stated in one of the NNPC monthly report, the comatose refineries gulped N560 billion with a zero performance level.
This has resulted in humongous subsidy spendings by the NNPC which hits N2.1 trillion in June 2022 as the sole importer of petrol into Nigeria for more than four years and counting.
Even though Nigeria’s four refineries did not refine any crude oil in the last one year, they recorded operational deficit of almost N10 billion during the period, documents sourced at the Nigerian National Petroleum Corporation (NNPC) have revealed.
According to the documents, Warri Refinery recorded an operational deficit of N2.67 billion in the period under review, while Kaduna refinery and the two Port Harcourt refineries posted deficits of N4.18 billion and N2.7 billion respectively to bring the total deficit to N9.546billion.
According to NNPC documents, since April 2019, all of the four Nigeria’s refineries have not refined crude oil safe for the month of May when they collectively refined 430 barrels of crude oil, which is 0.09 per cent of their installed capacity.
The Group Managing Director NNPC Malam Mele Kyari blamed poor management on the performance refineries. Refineries remain comatose GMD NNPC.
He spoke yesterday while appearing before the Adhoc Committee set up by the House of Representatives to investigate the state of the refineries.
According to him, it was obvious that none of the refineries was functioning at the moment as a result of poor management while the routine Turn Around Maintenance (TAM) carried out within the period to keep them afloat was also poorly carried out.
Consequently, NNPC has resorted to Direct-Sales-Direct Purchase (swap deal) with some firms which are supplied crude oil by the national oil company in exchange for refined petroleum products.
The quantity of crude supplied to these companies usually falls short of the domestic requirement put at 455,000 barrels per day, which is the aggregate capacity of the four Nigeria’s refineries. The effect of this is a shortfall in the supply of Petroleum Motor Spirit (popularly known as petrol) leaving NNPC with no option but to look up to the major oil marketers to bridge the gap.
Except there is a special arrangement, under the new NNPC to be unveiled today, the Federal Government will need to source N2.1 trillion for payment of subsidy monthly as the N4.1 trillion paid as subsidy between 2017 and 2021 is currently being investigated by the House of Representatives.
Details of how N4.194 trillion was paid as subsidy to oil marketers between January, 2017 and June, 2022 have emerged.
Similarly, other details showed that N691.586 billion was paid from January-December 2018; N537.209 billion paid from January-December 2019; N133.625 billion paid from January-December 2020; N1.159 billion paid from January-December 2021 while N1.545 trillion was paid between January and June 2022.
The details were contained in the 2-page document submitted by the Director Overseeing the AGF, Mr. Sylva Okolieaboh to the House of Representatives’ Ad-hoc Committee inaugurated to ‘Ascertain the actual daily consumption of Premium Motor Spirit (PMS) in Nigeria, chaired by Hon. Abdulkadir Abdullahi.’
No doubt the Corporation Twitter account has already taking a new look depicting its transition into a CAMA Company enshrined in the PIA.
However, the President who also doubles as the Minister of Petroleum Resources appended his signature on the instrument of transfer on July 14th 2022 in preparation for the formal unveiling of the NNPC Ltd on 19 July.
This is in line with Section 54 of the PIA which stated that Bonds, Hypathecations, Securities, Deeds, Contracts, Instruments, Documents and working arrangements with regards to assets, interests or liabilities transferred to NNPC Limited or any of its subsidiary under subsection (1) will be effective and enforceable against or in favour of NNPC Limited.
Section 54 of the Act stated that “The Minister (of Petroleum Resources) and the Minister of Finance shall within 18 months of the effective date determine the assets, interests and liabilities of NNPC to be transferred to NNPC Limited or its subsidiaries and upon the identification, the Minister shall cause such assets, interests and liabilities to be transferred to NNPC Limited.
“Assets, interests and liabilities of NNPC not transferred to NNPC Limited or its subsidiary under subsection (1), shall remain the assets. interests and liabilities of NNPC until they become extinguished or transferred to the government and six months following the determination under section 54 (1) of this Act, the Minister, the Minister of Finance and the Attorney-General of the Federation shall develop a framework for the payment of the liabilities not transferred to NNPC Limited and if such determination of which assets, interests and liabilities to be transferred has not been concluded within the stipulated period of 18 months. all the assets, interests, liabilities of NNPC is deemed to be transferred to NNPC Limited after 18 months from the effective date.
“NNPC shall cease to exist after its remaining assets, interests and liabilities other than its assets, interests and liabilities transferred to NNPC. Limited of its subsidiaries under subsection (1) shall have been extinguished of transferred to the Government.”
The legislation added that any pending action of proceeding brought by or against NNPC before the transfer date with regard to assets, interests or liabilities transferred to NNPC Limited under subsection (1) may be enforced of continued by or against NNPC Limited as the successor of NNPC.
The NNPC LTD on July 1, fully transformed into a Company whose operations will be regulated under the Companies and Allied Matters Act following the implementation of the Petroleum Industry Act.
The Corporate Affairs Commission had on September 21 last year, completed the incorporation of the NNPC Ltd in accordance with the provisions of the Petroleum Industry Act 2021.
The PIA was signed into law by President Muhammadu Buhari on 16th August, 2021, following its passage by the National Assembly in July of the same year. With the registration by the CAC, the NNPC Ltd was floated with an initial capital of N200bn making history as the company with the highest share capital in the country.
Between when the PIA was signed into law in August last year and now, the management of the NNPC Ltd had taken proactive steps to prepare it for the take-off as a CAMA company.
For instance, several engagements have taken place between the NNPC, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, the Nigerian Upstream Petroleum Regulatory Commission, the Ministry of Petroleum Resources, Ministry of Finance, Governors, legislators, host communities and other key stakeholders to understand the impact of the changes the PIA brings.
Also, a PIA transition committee was set up to drive the transitioning of NNPC into a full CAMA Company.
The NNPC had also set up an in-house committee supported by renown reputable consultants (McKinsey, KPMG, PWC, Wood McKenzie and Olaniwun Ajayi LP) to define and implement the transition roadmap.
This roadmap includes valuation of the assets and liabilities, development of corporate governance frameworks, rebranding of NNPC to NNPC Ltd and change management.
Flowing from the PIA, findings showed that one of the things that will be different following the NNPC transitioning is that it is expected to become a commercially oriented and profit-driven national petroleum company independent of government and audited annually.
What this means is that in terms of operations, the NNPC would be managed like a private sector enterprise and unlike previously when it was owned by the government, the NNPC is expected to become more efficient in its operations.
This will enable the company to effectively maximize returns on investment for the 200 million Nigerians, ensure returns for shareholders and pay taxes to the government.
Where there is an impact of its operations on prices of petroleum products, the government will be expected to determine how the differential will be managed. What this implies is that impact of prices will not automatically be transferred to the citizens as the government remains committed to providing energy security and sustaining the economy.
Going by the transitioning, the NNPC’s operations will not be subsidized by the government because as a CAMA Company, it would be expected to pay dividends to shareholders which in this case is the government.
Recall two weeks ago at the 21st Nigeria Oil and Gas (NOG) Conference and Exhibition with the theme: ‘Funding the Nigerian Energy Mix for Sustainable Economic Growth,’ the Group Managing Director, Mallam Mele Kyari dislosed that the mode of operation of the national oil firm would be no different from the private firms.
He also noted the transition of the NNPC LTD into an entity that would be regulated in line with the provisions of the Companies and Allied Matters Act will position it as a partner of choice to all oil and gas companies globally.
The Corporation GMd further revealed that its had already transited to the NNPC Limited both technically and financially on every aspect from July 1st. He added, “I am inviting all of you to be present as Mr president will unveil the NNPC Limited to all of us on the 19th of July, and I’m inviting you.
“The meaning of this to our industry is that you’re going to have the partner of choice, the partner that will support you, the partner that will be the largest capitalized company in Africa. Not only that, a partner that will be born of best practice, of everything that you can think of because we’re going to be a CAMA company. We are going to be another Shell, decision making would be easy, finances will also be easy.”
