Airline operators, marketers agree on aviation fuel price

Airline Operators of Nigeria (AON) and the Major Oil Marketers Association of Nigeria have reached an agreement to forestall the shutdown of local aviation activities in the country.

The two unions agreed to peg the price of Aviation Turbine Kerosene also known as Jet A1 fuel at N500 per litre from the current price of N630. The new price will be in place for 72 hours after which the marketers and the AON are to agree on new price modalities.

The Nigerian government is also to allow the airline operators to import ATK by granting them licences.

These resolutions were adopted on Monday during the investigative hearing by the House of Representatives ad hoc committee investigating the scarcity of jet fuel.

The resolutions were read out by the Group Managing Director of NNPC Limited, Mele Kyari, during the hearing while the Deputy Speaker, Idris Wase, said the report of the committee will be considered and adopted by the House on Tuesday.

The committee was mandated by the House on Wednesday to conduct the investigation following a motion by the Chairperson of the House Committee on Aviation, Nnoli Nnaji.

Mr Nnaji brought the motion some weeks after major airlines increased their fares by over 100 per cent. Some airlines now charge N50,000 flat rate for tickets.

The hearing

At the commencement of the hearing, the Deputy Speaker, Idris Wase, asked Ugbugbo Ukoha, the executive director for Distribution System for Storage and Retailing Infrastructure in the Nigeria Midstream and Downstream Regulatory Authority, to brief the committee on the steps taken so far to crash the price of ATK.

Mr Ukoha, in his response, said the authority had a meeting with the marketers to sell fuel to operators at discounted rates. He noted that the marketers and the operators failed to agree on any particular price for ATK.

He also dismissed the allegation of marketers forming cartel to distort the price of the ATK fuel.

“Yes, we have a role to forestall cartels and all, but that is not what we have noticed in this case. We have sufficient product, what we observed is that it is a commercial challenge between the airlines and the marketers. The marketers have their own position, and they are saying we cannot sell in the price suggested here,” he said.

Marketers react

Olumide Adeosun, the chairperson Major Oil Marketers Association of Nigeria, said the marketers have been selling fuel to the operators on credit.

According to him, the increase in international oil prices had an impact on the liquidity of the oil marketers and the airline operators.

He noted that some of the oil firms had expanded the credit of most of the buyers like Air Peace, Arik and Maxi Air.

“We typically sell on credit. For each of the airlines that are significant buyers, Air Peace, Arik, Max Air, we sell to them on credit. We had noticed that since the end of last year, the price of the product was getting higher, which had two impacts; it means the airlines needed working capital to increase and we as inventory holders needed working capital to increase.

“For most of the airlines, we have increased their credit—for Arik we were trading N115 million at the end of the year. We are now at N150 million, for Air Peace, we were at N120 million, but now we are at N200 million. At any given period, those accounts are delinquent. That is a fact. At any given point, those accounts are delinquent,” he said.

Mr Adeosun further explained to the committee that his Company, Ardova PLC lost over N2 billion in 2020 after the lockdown due to COVID19 pandemic. He stated that the marketers are willing to negotiate with the airlines on talking long positions.

He urged the lawmakers to instead focus on local production of ATK, which according to him, some modular refineries are producing ATK, but they cannot sell it because they have not been certified to do so.

“There are some very easy things we can discuss. Do you know that there are refineries in Nigeria that are producing ATK? Do you know why we cannot sell that ATK? Every modular refinery that produces diesel, produces ATK, it is a middle distil, it is the same thing. The density is the only difference. But they cannot sell today because the refineries are not certified. And it is absolutely necessary that ATK that is produced in Nigeria must be priced in Nigeria,” he stated.

Ticket may sell for N120,000

However, Mr Onyema, who spoke for the airline operators, was not particularly convinced by the arguments put forward by the oil marketers’ representative.

He stated that Mr Adeosun dodged the question around how much the oil marketers are getting FX at the parallel market and how much they are buying ATK.

He said the operators will be forced to increase flight to N120,000 per ticket for economy class.

According to him, it costs operators N7million on fuel to fly from Abuja to Kano on a standard 130-seater aircraft.

“I have the mandate, if they (marketers) cannot come down from their high horse, we have only three more days to be able to fly, we are not threatening this country, we want to be able to subsidize—as at today—the unit per seat is about N70,000 per seat, we have not included insurance that is very static, and Nigerians pay a lot of insurance premium, because Nigerians are stigmatized—you have to insure abroad because all the insurance companies in Nigeria combined cannot insure one aircraft.

“From what is happening, if we continue, this way, the least ticket you will expect from airlines will be about 120,000 naira for economy. We don’t want to do that. We are now demanding that we should be given licence to import this fuel, if we can buy jets that cost $80 million, we can afford to import this fuel—give us the rights to import this fuel,” he said.