Aviation fuel in Nigeria is the most expensive in the world, a development that has affected airlines’ operations and bottom line. In a bid to reach a consensus over the lingering high cost of the product, the minister of aviation recently summoned oil marketers and other stakeholders in the aviation industry to find a solution to the problem. IME AKPAN writes
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Nigeria is the 12th largest oil producer in the world and the largest in Africa. It currently produces about 2.5 million barrels of crude and around 35 billion cubic meters of gas. Proven oil reserves are 22.5 billion barrels, approximately 2 per cent of the world’s total reserves.
But the pathetic irony of this oil-producing nation is that in the past months, it has spent more than N2 trillion on importing an estimated 8.1million metric tons of petroleum products from around the world including non-oil producing countries in Africa like Cóte D’Ivoire and Togo.
For almost the whole of 2010, the four refineries with a combined capacity in excess of 445,000 barrels per day could only refine a dismal and embarrassing 80,757 metric tonnes of petroleum products.
While the prices of the other petroleum products like petrol have somewhat stabilised, the cost of aviation fuel has continued to head for the rooftop.
For most of 2010 and up to this period, LEADERSHIP gathered that government spent an estimated $404.83m to import aviation turbine kerosene (ATK) or aviation fuel. This trend has continued into 2011 as the price of the product has hit an all-time high of N190 per litre in Lagos and N210 in other places.
The development is almost crippling the operations of the domestic airlines. Consequently, domestic airline operators have jerked the fare to N25, 000 for an hour’s flight.
On that score, the minister of aviation, Stella Oduah-Ogiemwonyi met with aviation fuel marketers, airline operators, chiefs of aviation agencies and other stakeholders in the industry to “frankly and collectively confront the issue.”
“The average domestic airfare for the economy class in January 2011 for one hour flight hovered around N12, 000, all taxes inclusive. This has jumped to an average of N25, 000 by
July 2011 which is over 100 per cent increase with the likelihood of further increments and attendant effects on flight delays, cancellations, downturn in passenger traffic and overall effect on the survival of the Nigerian aviation industry,” she declared.
She reminded all the concerned persons of the federal government’s transformation agenda with the challenge that every major project must provide 20 per cent employment.
She also set up a six-man committee to come up with recommendations that would help force down the prices of aviation fuel.
The committee, which has two members each from the Airline Operators of Nigeria (AON) and the aviation fuel markers’ union, one member from other stakeholders and the sixth from the ministry of aviation has two weeks to submit its report and recommendations.
The committee is charged to look into the challenges facing the airline operators, the fuel marketers and all other related issues that have a bearing on the rising cost of ATK.
While urging the committee to approach the assignment with a high sense of urgency, the minister expressed optimism that the challenges facing the sector, including rising cost of aviation fuel, were solvable if all stakeholders resolved to dialogue frankly about all issues currently inhibiting the growth of the sector.
The minister raised some posers, which are germane. “Is aviation fuel produced in outer space? Is there any developing country producing aviation fuel? I stand to be corrected that the Middle East countries are exceeding their national demand for locally-produced aviation fuel.
Do we have the raw materials locally to produce aviation fuel? If the answers to these questions are yes, should we all not agree that this is the way to go?”
She said her dream is to make air travel the preferred mode of transportation for the average Nigerian, lamenting that with N18,000 as minimum wage, the high cost of air tickets were not sustainable, hence the need to explore all legitimate means of bringing down fares.
She stressed that all stakeholders must come together to fashion out strategies that would not only revive the sector, but also help create jobs for millions of unemployed Nigerian youths.
As a private sector entrepreneur, Oduah said she would desire for an innovative and solution-driven ministry to “achieve our vision of being the best aviation industry in Africa and one of the best in the world.”
Corroborating the minister’s position, the director-general of the Nigerian Civil Aviation Authority (NCAA), Dr. Harold Demuren, explained that aviation fuel accounted for between 25 per cent and 40 per cent of airlines’ operating cost. He stated that between 2003 and June 2011, the price of the product has oscillated between N40 and N210.
He noted that the price differs from city to city with Lagos offering the lowest price for the commodity as opposed to other cities including Abuja, Port Harcourt, Kano and the others.
According to Demuren, the price of jet fuel increased in Lagos in 2003 from N40 to N69 per litre in 2004 and N67 in 2005. It rose in 2006 to N83, upped to N89 in 2007, N119 in 2008, reduced to N110 in 2010 and increased to the current price of N210 outside Lagos.
Demuren further said that over time, a meeting of the joint users’ hydrant installation (JUHI) made up of independent fuel marketers was convened to deliberate on reducing the cost of aviation fuel.
JUHI managers enumerated the reasons for the increase in the price of the product to include landing cost, handling cost including high demurrage charges by the Nigerian Ports
Authority (NPA) as well as increasing operational costs not limited to filtration cost into the aircraft as well as increased charges collected by the Federal Airports Authority of Nigeria (FAAN).
“We resolved that the ways the cost of aviation fuel could come down for airlines was if there was reduction of FAAN’s increasing charges and rates, reactivation of supply pipeline from Mosimi, as well as provision of alternative access route between the domestic airports to the international terminal,” said Demuren.
Analysts said marketers and airlines cannot fully determine the cost of jet fuel that would eventually be passed on to them on a regular basis because a lot is eventually built into the cost to ensure the imported fuel meets the standard that should go into the aircraft.
For instance, filtering aviation fuel that has been delivered after being on the high seas for weeks attracts a considerable sum.
LEADERSHIP learnt that changing a filter vessel could attract as much as N10million.
And that is just one vessel out of several in a couple of weeks or months.
Besides, there’s what they call International Fuel Quality Pool (IFQP), controlled by the International Air Transportation Association (IATA), with Lufthansa, Air France, KLM and other foreign airlines being members.
One of them will come and inspect all the depots and if a marketer is found wanting, he forfeits that year’s business”, he declared.
Apart from this top quality check, the industry remains extremely dynamic in terms of aviation fuel standards, with added specifications and regulations on constant basis. The pressure is worse after any mishap, which further makes standards more stringent globally.
All these are factored into costs and invariably, price of the product. Worse still, jet fuel is not considered priority product in Nigeria. Premium Motor Spirit (petrol), remains the priority product.
And every effort by the AON to ensure that Jet A1 was ranked the same has met a brick wall.
It was also gathered that aviation fuel could hang on the high seas for as long as 10 extra days or more, and for each of the days, fuel marketers cough out as much as $10,000 each day as demurrage charge.
Until vessels loaded with PMS are offloaded, there is no chance for a Jet A1 vessel to discharge its content.
Thus, it is not unusual for a Jet A1 vessel to spend an average of seven days before receiving attention. That translates to an average of $70,000 a trip per vessel. Such additional cost simply pushes up the price.
Marketers are working on the process of facilitating a submarine pipeline to connect the vessels on seas with vessels at harbour for faster delivery.
But the monstrous cost such a move would gulp remains more than an enough impediment to grapple with.
It was further learnt that the reason for the Jet A1 price hike and subsequent scarcity was that there is a seeming a tardy business relationship existing between the oil marketers and their overseas suppliers.
The latter now demands cash to transact business and the oil marketers are requested to pay fully for their stock before they can import.
Hitherto, the commercial banks in the country reportedly provided some form of cushion for the oil marketers by providing them credit.
But the banking reform which seeks to reduce banks over-exposure to ‘dishonourable loans’ and coupled with oil marketers’ alleged default in payment of credit granted them, forced the banks to remove the financial support they hitherto provided.
On the other hand, the domestic airlines are alleged to owe the marketers billions of naira in lump sum as the fuel dealers hitherto sold to the operators on credit.
Now, with the new cash-and-carry payment mode, the airlines due to high operational costs cannot make full payment for the quantity of fuel they would require daily.
The marketers said they certainly need a little time to put together huge funds to pay the importers as was the case in the past. It was learnt that the ripple effect of the debacle is that the oil marketers are no longer importing at optimum capacity due to a shortfall in the funds available for them with no one to buffer the difference.
They also demand cash from the airlines and this has drastically slowed down business on all fronts. LEADERSHIP gathered that in recent times, the fuel marketers have to ration the ATK so that every airline gets some quantity of the commodity.
Consequently, some flights are regularly cancelled as the airlines can no longer operate in full capacity. An airline like Arik Air, which at its peak operates about 150 daily flights, managed to build a small fuel dump to buffer its operations.
That has become cold comfort for its fuel needs because the capacity is quite low and it is only utilised during very critical situations where a flight must be operated at a very short notice and no time to wait for oil marketers to fuel the airplane.
According to the airline’s chairman, Mr. Joseph Arumemi Johnson-Ikhide, the airline needs an average of 500,000 litres of Jet A1 daily and 3.5 million litres weekly. Some airlines like
Air Nigeria, Dana, IRS and Aero also need about 350,000 litres of fuel each on a daily basis.
That the minister is coming from the downstream sector of the petroleum industry is good news.
She is the chairman and chief executive of Sea Petroleum and Gas (SPG); she served in the Nigerian National Petroleum Company (NNPC) in the 1980s.
This means that she has a good knowledge of the petroleum sector and she knows how she and her colleagues operate. That she has also confronted the JET A1 marketers on the vexed issue of the high cost of the commodity is a welcome development.
But can she go the whole hog to dare her colleagues, expose them if they are creating any artificial scarcity as it is beleived in Nigeria that a dog does not eat a dog?
The petroleum products, including ATK, are imported by mostly operators, who are mostly made up of marketing companies as well as jetty and depot operators.
The operators are classified as Pipelines and Products Marketing Company, (PPMC) which is the marketing arm of the Nigerian National Petroleum Corporation (NNPC); the majors, made up of Mobil, Total, Oando, Conoil, AP and MRS Oil Plc.
The bulk of petroleum products are imported by the independents, which number is hard to determine, but include NIPCO, MRS Oil and Gas, Capital Oil, Integrated Oil, Sahara Oil, Zenon. Many of the Independents are in throughput arrangement with the NNPC/PPMC, due to lack of storage facilities.
Analysts said the minister does not only need to be a Stella, but she must also be made of steel to deal with the scarcity/skyrocketing price of aviation fuel and its marketers that have constituted themselves into a cartel.
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