Airlines, oil marketers disagree over JET-A1 price

Agency Report
Agency Report

Nigerian airline operators are currently at loggerheads with oil marketers over the rising prices of JET-A1, also known as aviation fuel.

While marketers have defended the price, which is as high as N600 per litre, airlines have insisted that it is too high, accusing marketers of exploitation.

As a result, airlines have threatened to shut down, forcing the state oil firm, NNPC Ltd., to intervene by importing two cargoes of the product and selling at lower prices to cushion the effect of high operational costs on airlines.

The entire situation has led to increases in airfares.

The Chairman, United Nigeria Airlines and Spokesperson of Airline Operators of Nigeria, Obiora Okonkwo,  during an interview said that the current price was too high.

He insisted that the price of aviation fuel per litre should not go as high as it was currently being sold.

He said, “For a country like Nigeria that currently does not have internal production, this fuel is a deregulated product, and the supply comes from outside Nigeria and it is also being determined by the oil market internationally. So, oil prices jumping from $60-$70 to $110-$120 expectedly should affect the price. With that, we don’t have any problem. We are not holding the government accountable for anything.

“This is not the issue. We know that these prices have international influence. It is also a very transparent market, whereby you will know using the pricing formula based on the existing oil price internationally at that moment. However, we know if that is applied vis-a-vis the pump price of getting this Jet A1 in Nigeria, there is something wrong. That is the issue.”

On his part, a former Chairman of the Major Oil Marketers of Nigeria and Chairman, 11 Plc, Tunji Oyebanji, told The PUNCH, that the NNPC was able to sell at a lesser price because it could access the foreign exchange.

The state oil company had sold the two cargoes it brought in a few weeks ago at N432.6/litre and N462/litre respectively, while marketers sold to operators at N540/litre.

In a bid to cushion the effects of the scarcity and high price, the House of Reps said it had entered into an agreement with Oyebanji who, a few weeks ago, had six million litres in his tank.

Oyebanji, in an interview with The PUNCH, said he had offered to help by bringing down the cost, selling to airlines at N480/litre. However, prices soon shot up after his six million stock got exhausted.

The PUNCH learnt that price had since shut up.

Further checks by The PUNCH on Jet fuel sellers, Rotterdam, revealed that the prices of JET-A1 fuel was the same in all West African countries- at $0.992.

Using the current CBN rate of N415.62, the current price should sit at about N412/litre at the international market.

As of Monday, the product was sold in Lagos at N598 per litre, N642 in Kano, N640 in Kaduna, N627 in Abuja, N635 in Enugu and Anambra and N628 in Port Harcourt.

A top oil marketer told The Punch that his price was N612/litre.

On his part, the Executive Secretary of MOMAN, Clement Isong, advised Nigerians to ‘adjust’ to current market trends as the crises were not peculiar to the country.

“Nigerians should understand that there is a situation in the world and we must adjust and sort out ourselves. Government cannot do everything for us. Currently, the government does not have money to sort out the education sector, health, agriculture and other sectors. ASSU is currently on strike, and the government can’t do anything about it,” he said.

He added that there was currently a scarcity of aviation fuel all over the world, adding that no country in Africa had a single drop of ATK in its tanks.

“Most of the ATK in the world is being refined in Russia, and you know the country is currently at war and can’t refine. So, that is why the price is currently high.

“The foreign airlines base their calculations on PLATTS plus Premium and margins,” he said.

PLATTS is an international price reference closest to the country where the refinery is located, while premium cost is marketers’ transportation, plus logistics, plus margins.

“In Ghana, it is currently PLATTS plus premium plus $200 per litre. So, if I have a contract that allows me to recover my costs, I will do everything to satisfy such customers,” he added.

He said the NNPC bought the product at cheaper rates and could afford to sell it cheap to airlines.

“For instance, if the NNPC brings it in at N416 and sells at N460, but I use the black market and bring it in at N600 per litre, it means I will sell mine at a higher price”, he said.

A top oil marketer had told The PUNCH that the Federal Government was currently “broke” and would not afford to subsidise JET-A1.

“Nigeria is broke and the people who fly are not as many as those who use the roads. So, it is not beneficial for the government to even subsidise for the sake of just a few people. The airlines should just go ahead and increase airfares,” he said.

He revealed that local airlines had claimed they could import the product at N300/litre, adding that the NNPC had beckoned on them to come for import permits but they had declined.

On his part, the National Operations Controller, the Independent Petroleum Marketers Association of Nigeria, Mike Osatuyi,  listed reasons for the price hike of aviation fuel as short supply, increase in crude oil price, and high dollar exchange rate to naira at the black market.

“One thing is that aviation fuel is regulated, so the landing cost, crude price and black market exchange rate are being decided by the international market. The government does not subsidise aviation fuel.

“Cost of products in Sokoto is different from those of Lagos and Abuja, depending on the transportation costs of taking products there,” he said.

He called on the Federal Government to intervene in solving the crisis currently ravaging the aviation sector.

Experts react

A petroleum engineer and Technical Director, Drill Bits, Bala Zaka, said the main problem with increasing product prices was deregulation based on a premise of importation.

He described deregulation as “poisonous and satanic”.

Zaka said, “First, everybody needs to understand that oil marketers are investors and are after profit maximisation and cost minimisation. But the principal reason things are the way they are in Nigeria is because our economy and political leaders have decided to use the wrong model for the downstream sector. When you talk about aviation fuel, you are talking about refined petroleum products. Our leaders are using the wrong economic model, and they are going further with it in the PIA by deregulating the downstream sector, and basing products sales on import.

“This means that for a country that has a weak currency like Nigeria, deregulation will not do any good to that country. Because those who are going to be the marketers will source for FOREX anywhere, and then buy aviation fuel at higher prices. After importing it, they will sell it at very expensive prices. This way, the airline operators and Nigerians will continue to groan in pain.

“We see what has happened to diesel and to the sectors using diesel. Everything is getting collapsed, companies are shutting down, and people are getting fired. The income taxes of companies using diesel will go down this year, profit will go down because they are not breaking even.”

He said marketers were not to blame for the high prices of aviation fuel because the model adopted was deregulation, adding that Nigeria was too weak to deregulate the prices of products.

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