Nigeria lose over a trillion on moribund firms

Adebayo Obajemu

The poor state of the economy is not only attributed to economic management deficiency, but also to the profligacy of many government agencies, parastatals and departments which gulp billions in terms of personnel costs, with little or no contribution to national coffers. These agencies of the government which have gulped billions of Naira are nothing but white elephant projects.

A good example of these white elephant projects is Ajaokuta Steel Company. According to available data, the Federal Government allocated over N3bn to cover personnel costs at the Ajaokuta Steel Company each year under the regime of the President Muhammadu Buhari, despite the company’s idleness.

The data were garnered from the appropriation bill from 2016 to 2023 which is available on the website of the Budget Office of the Federation.

In the said data between 2016 and 2023, a total sum of N29.35bn has been budgeted to cover personnel costs for the Ajaokuta Steel Complex.

In 2016, the Federal Government budgeted N3.55bn for personnel cost, which was 90.79 per cent of N3.91bn total expenditure budget of the steel plant. By 2017, personnel cost allocation was N3.84bn, which was 89.92 per cent of the total allocation of N4.27bn.

The sum of N3.76bn was allocated to cover personnel cost at Ajaokuta Steel Plant in 2018. This was 89.74 per cent of the total expenditure budget of N4.19bn.

Funds were also budgeted for certain projects such as the maintenance of power facilities for N106.3m, construction/provision of water facilities for N196.5m, lighting and security of Ajaokuta steel plant at N10m and purchase of a 30-seater bus at N413m.

In 2019, the allocation for personnel was N3.26bn, which was 90.53 per cent of the total allocation of N3.59bn.

A further breakdown showed that salaries and wages gulped N2.5bn, while allowances and social contribution took N793.6m. Also, uniforms and other clothing cost N2.5m, with refreshments and meals costing N1.8m.

Funds were also budgeted for certain projects such as the maintenance of power facilities for N87.7m; construction /provision of water facilities for N123m; lighting and security of Ajaokuta steel plant at N10m, and purchase of a 30-seater bus at N41.3m.

In 2020, the personnel cost was N3.53bn, which was 94.64 per cent of the total allocation for the moribund company. A further breakdown showed that salaries and wages cost N43.3m, whereas allowances and social contribution took N5.4m.

Also, uniforms and other clothing cost N273,684, and refreshments and meals took N1.6m. Funds were also budgeted for certain projects, such as the maintenance of power facilities for N43m, construction/provision of water facilities for N94.2m, and lighting and security of Ajaokuta steel plant at N10m.

In 2021, the personnel cost was N3.89bn, which was 92.18 per cent of the total expenditure budget of N4.22bn.

A further breakdown showed that salaries and wages cost N3bn; allowances and social contribution took N846.5m; uniforms and other clothing took N2.5m; while refreshments and meals cost N1.8m. Fund was budgeted for only one project in 2021, which was the construction/provision of water facilities for N80m.

By 2022, the sum of N3.94bn was allocated for personnel cost, which was 88.14 per cent of the total N4.47bn expenditure budget for the Ajaokuta company.

A further breakdown showed that salaries and wages cost N3.01bn; allowances and social contribution took N924.6m; uniforms and other clothing cost N2.5m, while refreshments and meals cost N1.8m.

Funds were also budgeted for certain projects such as the maintenance of power facilities for N53.5m, construction/provision of water facilities for N87.7m, and lighting and security of Ajaokuta steel plant at N27.5m.

In the proposed 2023 budget, the Federal Government allocated N3.58bn to cover personnel cost, which was 96.5 per cent of the N3.71bn expenditure budget for the steel plant. Russia’s Tyazpromoexport built the plant, which was incorporated in 1979.

Regrettably in spite of the regular budget, the steel company is yet to commence full operations in over 42 years, with the government making failed attempts at privatisation and concession.

Another money -gulping parastatal of the government which has been widely criticized as wasteful are the refineries, being managed by the Nigerian National Petroleum Company Limited, which has reported a total loss of N778.71bn from 2015 to 2019, going by their financial statements.

The refineries generated total revenue of N21.12bn in the five-year period as they operated at below their full capacities. The refineries, which are located in Port Harcourt, Kaduna and Warri, have a combined installed capacity of 445,000 barrels per day.

The country depends mainly on importation of refined petroleum products as its refineries have remained in a state of disrepair for many years despite several reported repairs. Port Harcourt Refining Company generated a total revenue of N10.33bn from 2015 to 2019, but posted a loss of N229.14bn.

The refinery generated zero revenue in 2019; N1.46bn in 2018; N4.82bn in 2017; N3.37bn in 2016, and N683.52m in 2015. It lost N50.53bn in 2019; N45.59bn in 2018; N53.77bn in 2017; N43.44bn in 2016, and N35.81bn in 2015.

Kaduna Refining and Petrochemical Company reported revenue of N4.17bn and a loss of N307.27bn in the five-year period. The refinery generated revenue of N37.17m in 2019, compared to zero revenue reported in 2018. Its revenue had risen to N2.24bn in 2017 from N1.47bn in 2016 and N418.76m in 2015.

It posted a loss of N65.99bn in 2019, N63.64bn in 2018, N111.89bn in 2017, N30.19bn in 2016 and N35.56bn in 2015.

Warri Refining and Petrochemical Company posted a revenue of N6.62bn and a loss of N242.30bn in the period under review. Its revenue dropped to N921.82m in 2019 from N1.99bn in 2018 and N1.25bn in 2019. It had risen from N884.39m in 2015 to N1.58bn in 2016.

The refinery recorded a loss of N51.66bn in 2019, compared to N52.18bn in 2018, N84.60bn in 2017, N24.50bn in 2016 and N29.36bn in 2015.

Kaduna refinery, in its 2019 annual report, said its losses had arisen principally from its inability to operate profitably under its current processing contract with its parent company, NNPC.

The report said, “KRPC’s primary source of revenue is from the processing of crude oil for NNPC. The processing fees are determined solely by NNPC, without consideration for related costs and are significantly lower than the costs incurred to produce.

“The high cost is also due to the current structure of the organisation whereby the company bears the total cost of personnel expenses.”

It said the NNPC had undertaken not to reduce its shareholding in the company and to continue to support it by funding its operations ‘until such time the company is in a position to adequately finance its operations’.

NNPC’s latest monthly report showed that Port Harcourt refinery stopped processing crude oil in April 2019, while Warri and Kaduna refineries have been idle since May and June 2019 respectively.

The corporation said the declining operational performance of the refineries ‘is attributable to ongoing revamping of the refineries, which is expected to further enhance capacity utilization once completed’.

The Federal Executive Council approved on Wednesday the plan by the Ministry of Petroleum Resources to rehabilitate the Port Harcourt Refinery with $1.5bn.

Recently, SERAP, a rights advocacy sued President Buhari for spending N1.48 trillion on maintaining refineries with no crude oil. The government was alleged to have spent N10.23 billion in June 2020 on three refineries that processed zero crude.

SERAP filed a lawsuit against President Muhammadu Buhari “over his failure to probe allegations that over N1.48 trillion reportedly spent on maintaining the country’s four refineries between 2015 and 2020 may have been stolen, mismanaged or diverted into private pockets.”

The government reportedly spent N10.23 billion in June 2020 on three refineries that processed zero crude. Also in 2021, the government approved $1.5 billion (about N600 billion) to repair the Port Harcourt refinery. Despite the huge spending, the refineries are still not working while fuel scarcity persists.

In the suit number FHC/L/CS/806/2022 filed last week at the Federal High Court, Lagos, SERAP is seeking “an order of mandamus to direct and compel President Buhari to investigate the spending on Nigeria’s refineries, and alleged mismanagement of public funds budgeted for maintaining the refineries since 1999.”

“It has contributed to the importation and distribution of bad fuel, violating the human rights of many users, including to a safe, clean, healthy and sustainable environment.”

SERAP is arguing that “Alleged corruption and mismanagement in the oil sector and the importation and distribution of dirty fuel have continued to deprive Nigerians of economic opportunities, subjecting them to cruel and degrading treatment.”

SERAP is also seeking “an order of mandamus to direct and compel President Buhari to instruct appropriate anti-corruption agencies to jointly track and monitor the spending of public funds to rehabilitate, operate, and maintain Nigeria’s refineries.”

According to SERAP, “the government spends over N264 billion annually to operate and maintain the country’s refineries. Successive governments have reportedly spent trillions of Naira to rehabilitate, operate and maintain the refineries that have produced little or no fuel.”

“The government reportedly spent $396 million for maintenance of the country’s refineries between 2015 and 2020 alone. Despite this huge spending, millions of Nigerians continue to lack access to full and unhindered supply of fuel.”

“About N82.82 billion was reportedly spent in 2015; N78.95 billion in 2016; N604.127 billion in 2017; N426.66 billion in 2019; N218.18 billion in 2019, and N64.534 billion expenditure was recorded from January to June 2020.”

Another black holes in our economy which had gulped billions without commensurate return before it was set up for privatization is Aluminium Smelter Company of Nigeria, ASCON, which was set up in 1997, under the Sani Abacha military junta to explore Nigeria’s 187 trillion cubic feet of gas for aluminum production.

It was put in place to handle the needs of aluminum companies that are also part of the steel sector.
As is the case with anything Nigeria, politics, intrigues and bad policy choices brought the company to its knees.

The smelter plant was also to supply basic raw materials such as ingots and billets to local aluminum rolling mills and extrusion plants.

Many analysts have stated that the plant has not lived up to its expectation owing to various policy flip-flops and wrong actions by the Bureau of Public Enterprises (BPE) during the privatisation of the company by Olusegun Obasanjo civilian administration.

The plant was thrown open for bidding during the 2001-2005 privatisation exercise. A Nigerian-American company, Bancorp Financial Investment Group Divino Corporation (BFIG), initially came top and won the offer after bidding $410 million. But it was learnt that BFIG was disqualified by the BPE and the offer was transferred to a Russian company, RUSAL, who had earlier bid $205 million for the smelter plant.
This was after the federal government had expended billions on it.

As at the time it was built the company had a capacity of 193,000 tonnes a year when it was built by the government at a cost of $2.5 billion in 1997. But it was poorly managed and produced just 40,000 tonnes of metal before closing in 1999.

Findings by Business Hallmark revealed that PricewaterhouseCoopers had valued the smelter company at $3.250 billion, but Rusal paid only $130 million before taking over the smelter plant.

The situation led to bad blood which degenerated to court cases from BFIG. In 2012, the Supreme Court ruled that BFIG was the preferred bidder for the smelter plant – eight years after the legal battle.

Up till now, however, the BPE is yet to hand over the smelter plant to BFIG, according to the company. The company is still fighting in various courts to ensure that the BPE respects the court ruling.

The Nigeria Security Printing and minting Company is also alleged to be involved in wasteful spending without accountability.

Recently, NSPMC and the Office of the Auditor General for the Federation differed over the N162 billion financial infractions contained in the 2019 Auditor General’s report regarding the activities of the company.

While the Auditor General for the Federation said the management of the Federal Government-owned company should account for the said amount, the management said there was no loss of public fund in its operations, while stressing that government circulars does not apply to it as a registered company.

The management also said it was not under any government ministry even though it is listed as one of the government-owned enterprises.

The report said N91.1 billion, which appeared in the consolidated financial statements of the minting company for the year ended 31st December 2018 could not be verified and reconciled with the Assets Register due to non-existence of proper Non-Current Asset Inventories Ledger.

It also said that Inventories of Raw Materials amounting to N4bn and Consumables amounting to N2bn could also not be verified due to non-existence of proper Inventory Receipts & Issues ledger.

The report said: “In all, a total of N97.9 bn reported in the company’s financial statement could not be confirmed. The above anomalies could be attributed to weaknesses in the internal control system at the Nigerian Security Printing and Minting Plc.”

The AuGF report also said the sum of N48.9bn was overcharged against the Statement of Financial Performance of the company for years 2016 and 2019 with no verifiable evidences to justify these expenses as most of the
figures contained in the Statement of Financial Performance were different from the balances obtained from the Trial Balance.

The report also said that the Minting company spent about N14.43 billion on salaries and allowances for its staff between 2016 and 2019 without the approval of the National Salaries, Income and Wages.

The Auditor General also said that in contravention of the Pension Reform Acts, the Company paid salaries to its workers without fully deducting only 5% from the workers as against the minimum 8% as stipulated in the law. It need to go to National Salaries Income and Wages Commission for approval. However, the Board of NSPM Plc approves all remuneration of the staff.”

It also said that they were not bound by the provisions of the circular because it was not funded through the annual budget.

It said “the presidential directives on NITDA only applies to project funded from the National Budget. The NSPM Plc does not benefit from the National budget and has her thresholds that guide all approvals as an organization in business.

“NSPM PLC carries out the business of printing of bank notes and security documents with Central Banks as customers for the bank notes and security documents for government and interested public customers. It is not under any Ministry as stated in the directive.”

It said the company paid its Pay As You Earn tax which is tax deducted from workers salaries from its annual profit in 2017, thereby reducing the profit by NN56,328,778.79 and leading to revenue loss to the government.