Moribund refineries: Idle workers earn N136b as upgrade swallows $3 billion
There are indications that despite its closure, the Nigerian National Petroleum Company Limited (NNPC) may have left more than N136 billion in operational deficits at its three refineries. This is due to concerns over the delivery schedule and breaches of the Local Content Act which are driving the ongoing rehabilitation of refineries in Kaduna, Port Harcourt and Warri.
Recall that the NNPC had closed the 445,000 capacity refineries for more than two years, while retaining more than 1,701 employees in the facilities, as it rehabilitates the Port Harcourt refinery for $1.5 billion. and those of Warri and Kaduna for 1.4 billion dollars.
In August 2020, the total losses suffered by refineries were 7,088 billion naira, they were 7,043 billion naira in September of the same year before increasing to 5,489 billion naira in October. In November 2020, it rose to 5,995 billion naira and 8,279 billion naira in December of the same year.
In January 2021, the operating deficit was 5,371 billion naira, February recorded a loss of 6,879 billion naira, 3,866 billion naira in March, 3,544 billion naira in April and 5,243 billion naira in May , 4,014 billion naira in June, 3,752 billion naira in July and 3,819 billion naira in August 2021.
On average, the NNPC spends, more or less, 68 billion naira to pay salaries and other expenses in moribund refineries every year. Over the past two years, losses have averaged N136 billion.
NNPC chief executive Mele Kyari said in November 2020 that refineries had been closed as their operations were no longer sustainable, while overhead costs remained a snag on the books of the company, which aims to quickly return to profitability after years of loss.
In 2021, NNPC had 7,338 employees, including 1,701 workers at the Kaduna, Port-Harcourt and Warri refineries.
Approximately 660 employees, representing 8.99% of the company’s total workforce, work at Kaduna Refining and Petrochemical Company (KRPC), 506 at Port Harcourt Refining Company (PHRC) and 437 at Warri Refining and Petrochemical Company (WRPC).
Recall that the federal government had approved $1.5 billion to rehabilitate and modernize the Port Harcourt refinery complex in March 2021. The key contract for the refinery modernization was also awarded the same month, while that of Kaduna and Warri has been approved but has not yet started.
Reliable refinery sources have told the Guardian that the progress of work at the Port Harcourt refinery is commendable, but doubts the original timetable for completing the first phase of the project by the end of this year is achievable. .
On top of that, there are allegations of flagrant violation of the Local Content Act as well as job racketeering, even as the Eleme Defense Alliance plans to take legal action over the situation.
The community, according to youth leader Johnson Ngei, is being harmed as job vacancies are sold for 200,000 to 2 million naira depending on the position.
Ngei revealed that the community had already organized three protests but the company remained adamant, especially the contractors, Tecnimont, a subsidiary of Italian Maire Tecnimont.
Ngei said section five of the Community Guidelines of the Local Content Act, implemented by the Nigerian Content Development and Monitoring Board (NCDMB), particularly in the area of employment, has been seriously violated .
“At present they have employed over 3,000 people at the refinery, less than 200 are from the community, which is a gross violation. The law stipulates that at least 50% of semi-skilled labor must come from host communities or natives, which is not the case today.
“The law stipulates that at least 10% must be exclusively reserved. As I speak to you, the community relations manager who is supposed to be a community slot has been assigned to someone who is not even from Rivers. They are selling management slots for 2 million naira. Jobs are sold for 200,000 naira and semi-skilled jobs are sold for 600,000 naira,” Ngei told the Guardian.
Ngei also noted that while projects above $100 million are required to have a community liaison officer, this is not the case for the refinery project, which cost around $1.5 billion.
NNPC spokesman Garba Deen Muhammad did not respond to requests for clarification on the issues before this report was tabled last night.
A former technical advisor to the Nigerian Extractive Industries Transparency Initiative (NEITI), Dr. Garuba Dauda, has expressed concern over losses from refineries, pointing out that payment of wages for any work done cannot only be done with the government.
“It looks like we’re never going to learn from this. Refineries have not operated at 20% of their installed capacity for many years. Yet we pay the salaries and the workers are promoted when they are due. Why do we seek to understand where the losses come from?
“I lost faith in what the government is doing to fix refineries for many years. We should not have revoked their sale under the late President Umaru Yar’Adua’s administration. After revoking their sale, the government lost more with no light at the end of the tunnel. The government should sell the refineries and move on,” Dauda said.
An energy and economics expert, Henry Adigun, however, said the country may have to allow the new limited-liability NNPC to decide refinery issues.
Adigun said, “At the moment, NNPC needs to show profitability. They have to be given time to make decisions on refineries. Certainly, this level of loss should worry any serious management and board. Implementation of the PIA is still in its infancy.
Managing Partner, The Chancery Associates, Emeka Okwuosa, said it remained unfortunate that money was still being spent on elephant projects like Comatose Refineries without any lasting results, urging the government to disengage workers from the refinery.
The development, he said, is more worrisome when the country fails to meet its crude oil production quota, while revenues from the oil sector are eroded by the more than 6 trillion naira subsidies the government is currently paying out.
“Hopefully with the advent of the new NNPC which is trade-focused, we can make hay. I hope they can encourage the construction of more refineries and the maintenance and/or sale of old refineries for optimal results.
“We need more transparency and due process in the system. I don’t think spending more resources will improve refineries,” Okwuosa said.
An energy lawyer, Madaki Ameh, noted that the huge wage bills of moribund refineries on a monthly basis should be a serious concern for the country.
“This is yet another gutter that needs to be repaired, especially now that NNPC Ltd should be run as a profit-making entity, otherwise the expectation of dividends at the end of its business year will be yet another mirage,” said he declared. said.
Speaking on the rehabilitation of refineries, Ameh said the government is in a lame duck season and would not be able to effectively deliver any of the turnaround maintenance contracts.
According to him, the timelines will not be realistic and will be another source of grave disappointment for Nigerians when assessing the performance of this government at the end of its term in May 2023.
On Tuesday, the NNPC announced that nothing had been deposited in the government’s account in six months, at a time when many oil-producing countries around the world are making huge profits as oil prices over the past six months have reached their highest level in years.
According to NNPC in its presentation to the Federation Accounts Allocation Committee (FAAC) released on Tuesday, all of the N2.38 trillion revenue it has earned from oil sales has been spent as they arrived on projects.
Projects included refinery repairs, pipeline safety and maintenance costs, oil exploration (frontier exploration services), domestic domestic gas development, and cost recovery/fundraising.
Others are Nigeria Morocco Pipeline, Renewable Energy Development (RED), Pre-Export Financing, Gas Infrastructure Development and Crude Oil Pre-Export Inspection Agency Expenses (NESS FEES).
The NNPC, in its explanation, noted that of the total gross revenue, N1.59 trillion was spent on fuel subsidies. He said subsidy payments increased from 210 billion naira in January 2022 to 319 billion naira in June 2022.
The next big expense was on cost recovery/cash call labeled T1/T2 for the six month period, which amounted to N658.97 billion. Other expenses included pipeline titles, N12.42 billion, and oil exploration, N14.32 billion.
The lack of remittances by the NNPC to government accounts has left many states, which rely heavily on the federal allocation, scrambling to survive.
As the NNPC struggles, the national oil companies of Saudi Arabia and the United Arab Emirates (UAE) have recorded windfall profits. In the United Arab Emirates, state-owned Abu Dhabi National Oil Company (ADNOC) said its first-half net profit jumped 34% to $379 million, while revenue rose 13% to 1,000. $27 billion over the same period. Last year.
Saudi oil giant Aramco said its second-quarter net profit jumped to $48.4 billion from $25.5 billion a year earlier.