Business

JetA1 crisis: Stakeholders in search of solution

As the crisis, which has engulfed the supply of aviation fuel, persists, stakeholders in the aviation and energy sectors are proffering solutions to end the logjam. SUCCESS NWOGU reports

 

The increase in the price of aviation fuel, technically called JetA1, and the resultant threat by the Airline Operators of Nigeria (AON) to withdraw services, which was later suspended, have made it imperative for concerned authorities in Nigeria to activate and implement mechanisms to address the rising cost and make Nigeria less susceptible to the vagaries of international oil pricing and foreign exchange.

 

Chairman, Society of Petroleum Engineers, Nigerian Council, Mr. Joe Nwakwue, the Executive Secretary/ Chief Executive Officer, Major Oil Marketers Association of Nigeria, (MOMAN), Mr. Clement Isong and professionals in the aviation and energy sectors, proferred some remedial suggestions.

 

Sources estimated that billions of naira would have been lost had the members of AON carried out their threat to withdraw services.

 

Price tags/stalemate

 

There is, however, controversy over the actual price of JetA1 in Nigeria as AON had claimed that it was being sold for N700 per litre, while Isong said JetA1 was sold between N540 and N550 per litre at the tarmac at Lagos airports and N570 to N580 per litre at the farthest airports from Lagos.

The airline operators, in a statement on Friday, May 6, 2022, had announced that they would discontinue operations nationwide with effect from Monday, May 9, 2022, until further notice.

 

The statement was jointly signed by President, AON, Alhaji (Dr.) Abdulmunaf Yunusa Sarina and Executive Director, Max Air, Alhaji Shehu Wada, and Chairman, United Nigeria Airlines, Dr. Obiora Okonkwo. It was titled: “Airline operators to shut down operations amidst high cost of JetA1, sympathise with passengers.” Sarina said there had been a steady and astronomical hike in the price of JetA1 and other operating costs.

According to him, over time, aviation fuel price (JetA1) had risen from N190 per litre to N700 currently. He decried the fact that while aviation fuel is said to cost about 40 per cent of an airline’s operating cost globally, the present hike has shut up Nigeria’s operating cost to about 95 per cent.

Sarina said: “In the face of this, airlines have engaged the Federal Government, the National Assembly, NNPCL and oil marketers with the view to bringing the cost of JetA1 down, which has currently made the unit cost per seat for a one hour flight in Nigeria today to an average of N120,000. The latter cannot be fully passed to passengers who are already experiencing a lot of difficulties.”

 

Relief

 

AON, however, on Sunday, May 8, 2022, suspended its threat to withdraw services, which would have commenced on Monday, May 9, 2022. Temporary relief came to the airline operators and their passengers when the airline operators reached an agreement with NNPCL during a stakeholders meeting spearheaded by the House of Representatives to resolve the JetA1 price debacle.

The parties agreed that NNPC would supply JetA1 at N480 per litre to marketers nominated by the airline operators for a period of three months. However, while many people expected a long-run respite to the situation, the Group Managing Director, Nigerian National Petroleum Company Limited (NNPCL), Mele Kolo Kyari, brought the issue of subsidy as the only way NNPCL could bring succor to the troubled aviation sector.

 

He said NNPCL could not fix the prices of aviation fuel, stressing that the only way the company could address the soaring price of JetA1 is through the introduction of subsidy. Kyari said: “We cannot fix the prices of aviation on a deregulated commodity. The only way we can fix the price of aviation fuel is to introduce a subsidy.”

 

Stakeholders’ views

Proffering solutions to the high cost of aviation fuel, Nwakwue described JetA1 as a derivative of crude oil. He stated that the price, therefore, was dependent on crude oil prices. He, however, said the current spike in prices had to do with the on-going Russian and Ukraine war, which, he said, had resulted in product shortage and supply diversions.

 

According to him, in other words, prices would not be this high based on current crude prices. He advocated the domestic production of JetA1, but said Nigeria currently does not have its local refining capacity. Nwakwue said: “Local production would have helped, but sadly, we do not have domestic refining capacity.” Isong said that aviation fuel was an international product, adding that the product comes from the former Soviet Union and, as such, imported.

 

He noted that there was the logistics of making the product available to its buyers who are the airline operators. Isong explained that JetA1 is conveyed by ships from the international  market to Nigeria, adding that transportation and other logistics were also involved to deliver it to the users finally. He stated that refining the product at home was very desirable and could prevent Nigeria from the exchange rate debacle and the international vagaries of the product.

 

Isong said: “Dangote refinery is almost there. When it comes, maybe, there will be a relief. I am not saying it will make the price cheaper. JetA1 is an international product. So, it will be cheaper if we produce it than import it, but it will not be free. The trade price should be the same everywhere in the world.

 

It is not cheaper in the world. If it goes up, it goes up everywhere in the world. If we refine locally, it will bring down the price somehow as we would have removed the cost of shipping.” An expert in the aviation sector, who did not want to be quoted, said since it is imported, its price is dependent on the value of the naira to dollar exchange rate and some additives such as cost of transportation.

 

He also noted that the oil marketers might claim that they are buying dollars from the parallel market, in which case, it will just drive their cost further up and affect the price of the product to the users. He said: “We must be able to produce JetA1 locally. But then, that is not a quick fix, unless, of course, I am not certain what the Kaduna refinery was set out to do. But again, most of the refineries are not working or working at par. Those are the problems.

 

“Obviously it will be better for Nigeria to be producing JetA1 locally. I know that in the West African subregion and possibly in all of Africa, we have the highest number of airplanes operating out of the country. It is going to grow. So, the demand for JetA1 is going to continue to rise. If we look at basic economics that demand determines the price of goods, it means that we have to prepare for it, at least to some extent, by having to produce it locally.

 

“The local production could be by local investors, government or by public-private partnership. If you have private individuals who have the means and capability to build refineries, fine. If it is by PPP, it is fine too. “We have refineries in this country.

 

Wasn’t any of them planned at the inception to be able to produce JetA1? And if not, is there any of them now that has the capability to be made  produce JetA1? By and large, the solution is that you have to produce what you eat, otherwise you will be dependent on who is going to produce it. And if somebody is producing what you are going to consume, you are at the person’s mercy.

 

“Maybe the AON had at one time suggested that they be given license to import by themselves. I do not know if that could make it cheaper. But then, they have suggested that maybe they can put a hand on the table to see how the figures can go down.”

Global factor

 

Also, a stakeholder in the oil sector explained that the price of JetA1 was determined by the international market and not by any marketer within the country, adding that it is based on the international price the marketers sell to the airlines.

 

He recalled that this was not the first time AON threatened to shut down its services. The stakeholder stated that when the first time they threatened to shut down, the impression was that marketers were the ones increasing the cost arbitrarily, but when details of theirs were shown to them, they told them to subscribe to where they get their base price from, so they should also do the same thing as he stated that the only difference in the cost would be the premium, which will be the logistics and marketers’ margin that will be included in-house.

 

He explained that if any marketer decides to give the airline operators discount, it was well and good. According to him, the international price of the product and transportation cost from the Apapa wharf to the destination airport would be factored in to arrive at the final selling price.

 

The stakeholder also noted that diesel price had risen and, as such, transportation cost has equally increased. He said: “What they are seeing is as a result of all those put together. If that cost can be reduced, somehow, you are sure that aviation fuel costs can be reduced, but if the international price of crude oil cannot be reduced, if transportation costs cannot be reduced, then it is unlikely that anything will be reduced.

 

“If our refineries can produce it locally, which we were doing before, it is well beautiful. Local production must not automatically translate to cheaper prices. If Dangote buys crude oil from the Federal Government, it is buying it at the same price that the man who is taking it in Venezuala or Europe or any other country is buying it. It is at the international price of crude oil.

 

“So, what it means is that the difference maybe probably the cost of transportation or transporting refined products here. That will be minimal, but it does not mean that it will result in an astronomical difference that will be so wide. It is just the freight cost that will not be included there. “Whether we import the product or it is refined locally, the price differential will not be much. The only difference that will be there is the cost of freight.

 

Last line

If government decides to subsidise aviation fuel, they will get it cheaper, but government is not going to do anything of such.

 

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