Aviation Fuel Conundrum, Soaring Airfares and Nation’s Economy

Air travel is a catalyst to the economic growth of any nation, so when airfares rose a few weeks ago and continue to rise in response to hike in the price of aviation fuel, there were fears that the intermix of aviation fuel scarcity, high pump price and hike in flight tickets would constrict the nation’s economy. Chinedu Eze writes that these forces may keep domestic flights out of the airspace unless urgent action is taken to address the situation

The major challenge Nigeria is having now is how to tame the soaring prices of petroleum products, especially the ones that are deregulated, which include diesel and aviation fuel, known as Jet A-1. To keep the price of petrol at the official rate of N165 per litre, the federal government has to heavily subsidise it, a decision that has burrowed holes in the finances of the government.

For aviation fuel and diesel, their rising costs have given rise to panic because of their impact on the economy. What will happen if airlines stop operating, as the Airline Operators of Nigeria (AON) has threatened to do? What if fuel trucks and articulated vehicles stopped moving essential goods and services from one part of the country to another? What if manufacturing companies and other businesses shut down their operation due to the high price of diesel, which they use to power their generators?

There are key factors responsible for the high cost of aviation fuel. The major challenge is that aviation fuel along with other petroleum products are imported. So they yield to the undulating international market forces and pricing. The naira has significantly depreciated. Most importers are buying dollars at N600/$1 at the parallel market and that is outrageous. Now the price of crude oil has gone up in the international market, the cost of the refined product has also risen, so with such an increase and also the increase in the cost of ancillary services, it is expected that the cost of the product would be high.

Middlemen 

There are suggestions that a lot of profiteering is taking place in the import and distribution of aviation fuel, hence the high cost of the product which is already deregulated. People import and sell at their prices. THISDAY investigation also revealed since the rapid increase in the cost of aviation fuel, known oil marketers that sell the product to airlines like Sahara Energy, Oando, Conoil, MRS and others have stopped stocking the product because they cannot buy, but new companies have sprung up to sell the product.

This was confirmed by AON during the meeting the body held with National Assembly last week.

“Yesterday I travelled to Maiduguri, I bought aviation fuel at N675 per litre. It was sold by another company; I didn’t even know their name. The major ones that we know, and I have an account with them, are Sahara Energy, MRS, Oando and Conoil. Those I have an account with. They said they don’t have fuel and then we see new companies coming in. For the last 10 years or so we have been paying for aviation fuel, N180, N170, N140 per litre. But today we are paying N680 per litre,” one of the operators stated at the meeting.

Difficulty in Product Sourcing 

Also, the Managing Director of Clean Serve Energy Limited, Chris Ndulue, explained the challenge the aviation fuel marketers are facing.

“There are three basic things: the cost of crude oil in the international market and the price of the dollar. We have failed to refine fuel locally so we have to import. The price of crude oil has been rising and the price of the dollar has been rising. Supply of the product has been facing disruptions because there is war in Europe. There is scarcity because people have not been producing so the price is rising. We need to start producing refined product here,” he said.

On the issue of middlemen, he said that there were suppliers who were not selling directly to the airlines. They sell to the marketers who in turn sell to the airlines.

“But recently the Nigerian National Petroleum Cooperation (NNPC) intervened. They should start selling to marketers who directly sell to the airlines. In doing so the profit made by the middlemen will be abrogated so airlines can buy the product at a cheaper rate. But the major problem is that Nigeria is not refining the product. We have the raw material, which is crude oil. If it becomes a locally manufactured product the price will go down. There is no justification for the shutting down of the refineries for 20 years,” he said.

THISDAY findings show that airlines spend huge operating funds for the purchase of aviation fuel to operate two major aircraft types in use by Nigerian airlines, which include Boeing 737 and Airbus A320 among others. While Boeing 737 consumes about 2, 300, 2, 500 and 3409.57 litres of aviation fuel for one hour flight, depending on the configuration, Airbus A320-200 consumes about 3, 125 litres of aviation fuel or 2,500kg per hour.

AON said globally while fuel is about 30 per cent to 40 per cent of the cost of operation, it is about 70 per cent in Nigeria. 

Profiteering 

Industry sources alleged the prevalence of fraudulent activities in the importation and distribution of petroleum products, especially on the part of some highly placed public officers who use proxies to make fraudulent gains from the crisis.  

In the interview he granted to national television last Sunday, the former Senate President, Dr Bukola Saraki expressed strong doubt that Nigeria is consuming up to 70 million litres of fuel daily, as stated by NNPC and insisted that it won’t be more than 30 million litres daily. He strengthened his argument by observing that during the lockdown government officials said Nigeria was consuming about 50 million litres of fuel when most people were at home and the government allowed only essential movement.

In his verified Twitter handle, the former governor of Kwara state further said, “I want to address the cost of diesel and jet fuel at the moment. We have seen prices of diesel and prices of airfare go up as well. This has impacted the cost of food and transportation. I want to ask a question. Why has the cost of diesel and fuel gone up from N300 to almost N900 and the cost of jet fuel also has doubled when those products must have clearly been ordered, paid for and shipped before this Ukraine war started?”

During a meeting between members of the House of Representatives, officials of the Nigerian National Petroleum Corporation (NNPC) and AON last Monday, the Deputy Speaker, Hon. Ahmed Idris Wase wanted to know the cost of the imported aviation fuel per litre but he did not get any response from the NNPC officials.

Speaking on behalf of AON, the Chairman and CEO of Air Peace who is also the Vice President of AON said, “I have the mandate of every airline in this country to announce that if they (NNPC) cannot come down from their rooftops, we have only three more days to be able to fly. We are not threatening this country because we have been subsiding on what we are doing. The rate as of today (Monday, 14, 2022) is between N630 and N640.

“We have an aircraft going to Kano and that one has about 7000 litres of fuel on it. If you multiply it by N630, the unit cost per seat already is about N70, 000 per seat. We have not talked about very static insurance. All the insurance companies in Nigeria put together cannot even insure one aircraft, so, you have to go abroad to insure and they slam us with heavy premiums. What Nigerian airlines use in insuring one plane is what the legacy airlines use in insuring three planes, so domestic airlines are dead on arrival. 

“Yet, the fuel cost which was supposed to be about 30 to 40 per cent of operating costs in every clime in the world, is about 70 per cent in Nigeria even before now. So, you can now see the mortality rate of airlines in this country. They have refused to answer the question. Whether you got money from CBN or from the black market, how much is the unit cost of your acquisition (fuel import) so that we would know if the airlines are cheating you or you are cheating the airlines, or if you formed a cartel to increase your prices overnight. 

“From what is happening, if we continue this way, the least ticket anyone would expect from airlines would be N120, 000 for the economy and we don’t want to do that because it would not help the ordinary man. I have the mandate of the AON to demand that we should be given a license to import fuel. If we can buy jets that cost millions of dollars, we can also afford to import fuel. NNPC should give us the right to import fuel and we won’t complain,” Onyema said.

Expectations

Managing Director of Flights and Logistics Solutions Limited, Amos Akpan said that to ensure uninterrupted supply and good pricing of aviation fuel, the Nigerian government refine its product, improve its forex earning capacity, reduce the channels of distribution by piping into dumps and use rail for long-distance deliveries into depots.

“Government and its agencies should supply fuel to airlines, take voucher of fuel supplied to the banks, then banks should pay the supplier to stop cash payment.

“AON should keep the pressure on the government and maintain the current status of bringing information to the public daily on the issue. This helps their image. Those that are following cannot accuse them of taking advantage of the situation to profiteer,” Akpan said.