On Tuesday 16th June, when the NNPC Group retweeted a tweet by the Nigerian Extractive Industries Transparency Initiative (NEITI) about the release of NNPC 2018 Annual Financial report, our initial thought at Investogist was that a publication of the result was not worth the time that will be spent analyzing it.
We made this decision for two reasons; we are in 2020, and NNPC is releasing financial reports for 2018 and secondly just as it is pointless looking at the financial results of companies you can see to be clearly being mismanaged, it will be equally pointless looking at the financial results of the Nigerian National Petroleum Corporation.
It was not until a friend tagged me to a post on Facebook, about a publication by Nairametrics on how Kaduna Refinery and Petrochemical Company Limited, managed to spend N23 billion on employees while the company recorded zero revenue, that I thought I should take a look at the financial reports and write about them.
For clarity, NNPC is a huge conglomerate, comprising of several companies operating a many different sectors of the petroleum industry, as well as industries supporting the Petroleum sector. The 2018 annual financial reports published by the NNPC was in actual sense 20 annual financial reports from 20 companies that comprise this conglomerate called the NNPC.
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Our analysis, if I will call it that is on the 3 companies that run NNPC refineries;
- Port Harcourt Refining Company Limited (PHRC) with an installed oil refining capacity of 210,000 Barrel Per Stream Day. PHRC comprises of two refineries, the old refinery with a capacity of 60,000 bpsd, and the new refinery with installed capacity of 150,000 bspd.
- Warri Refinery & Petrochemical Company Limited (WRPC) with an installed oil refining capacity of 125,000 Barrels Per Stream Day. WRPC also have a petrochemical plant, that uses propylene rich feed to produce polypropylene pellets.
- Kaduna Refinery & Petrochemical Company Limited (KRPC) with an installed oil refining capacity of 110,000 Barrels Per Stream Day. KRPC also have a petrochemical plant; a 30,000 MT/yr Linear Alkyl Benzene Plant.
The principal activities of these companies is the processing of crude oil into petroleum products and related derivatives. All processing and refining activities are currently undertaken on behalf of NNPC in consideration of processing fees in line with the subsisting arrangement with the Corporation.
There is no need to go into a deep fundamental analysis of these NNPC companies, because were they to be private businesses, they should have been bankrupt a long time ago.
Table 1: An Extract of the Balance Sheet of PHRC, WRPC and KRPC for the period ended 31st December 2018
Fig 1: A graphical presentation of the an extract from the Balance Sheet for PHRC, WRPC and KRPC
For perspective, if I assume that the entire revenue of N1.98 billion earned by WRPC, which is the refinery with the highest revenue in 2018, was converted into profit, it will take centuries for these refineries to clear their ACCUMULATED LOSES;
- KRPC will need 213 years
- PHRC will need 194 years
- WRPC will need 172 years
Table 2: An Extract of the Income Statement of PHRC, WRPC and KRPC for the period ended 31st December 2018
Fig 2: A graphical presentation of the an extract from the Income Statement for PHRC, WRPC and KRPC
In the entire 2018 financial year, KRPC did “not earn any income through processing fee due to the shutdown of the plants and the ongoing through around maintenance.” What is Ironic though is that without any refining operations by the company, there was a very huge improvement in its Profit & Loss Statement. The company could be better left without operation, as it is more profitable not to operate the refinery than to operate it.
Table 3: No of Employees and Total Employee costs for the year ended 31st December 2018
Fig 3: A Graphical Representation of Employees and Employee costs for the year ended 31st December 2018
One can rightly ask the question; how is it that KRPC with the smallest installed capacity, and even the newest of all the refineries have the highest number of employees?
Having spent the better part of the last 24 hours studying these financial reports, I make these recommendations to the NNPC management, and it’s owner; The Federal Republic of Nigeria:
- Collapse the KRPC, and use the salvageable parts where compatible to maintain WRPC
- Should there be a sizeable discovery of petroleum in the Northern Part of Nigeria, build a new refinery on the NLNG model. Investogist had reported in May on NLNG: The Rare Success Story in the Nigerian Oil & Gas Sector
- Sell at least 51% of PHRC to private companies that can run it efficiently.
- Sell 49% of WRPC to private companies as well, and still maintain the “ego stroking” pride of having a national refineries.
As I read the commendations being given to NNPC for releasing the 2018 Annual Financial Report in 2020, I couldn’t help but shake my head at the mediocrity exhibited in Nigeria. If NNPC companies were listed on the Nigerian Stock Market, all would have been booted out of the exchange by now.
Nigerians need to start demanding for what is right, and stop applauding people that are performing even below “manageable” levels.