By Jeph Ajobaju, Chief Copy Editor
Global crude oil prices have soared beyond the pandemic to raise revenue for oil producing countries but, on the flip side, the cost of aviation fuel has also spiked to impact air travel in Nigeria where bandits make road journeys perilous.
Aviation fuel, also called Jet A-1, now sells for between N215 per litre at heavy traffic airports in the South and N300 in low traffic airports in the North.
In April, the price had shot to between N250 and N275 per litre, more than 200 per cent rise from 2016 when it sold for N110. It cost N200 in 2018 and hovered around N160 and N170 in 2019.
Investigation by The Guardian (Nigeria) shows that an average 50 per cent surge in fuel cost has forced airlines to increase airfares. Economy Class ticket for a flight of less than one hour costs more than N65,000.
Aviation fuel consumes 40% of airlines’ costs
Femi Adeniji, an engineer with Tropical Arctic Logistics which operates helicopter flights, expressed fears that jet fuel cheaper than N270 per litre could be contaminated.
And United Nigeria Airlines Chairman Obiora Okonkwo said the rise in aviation fuel price has added to the operational costs of his newly launched airline.
“We started operations at N160 per litre barely four months ago and when you move from that price to over N270 within two months, you should expect whatever we are experiencing now.
“Aviation fuel alone takes between 30 and 40 per cent of airlines’ costs. This is cause for grave concern to everyone,” he lamented.
The Guardian reports that the extra burden on airlines and travellers is connected with the naira/dollar exchange rate, logistics hiccups of importing the product through the chaotic Apapa Ports, and expensive distribution to airports by road.
Multiple taxes and charges on aviation fuel and the monopoly of marketers at less viable airports also combine to make the Nigerian price the most expensive in West Africa – even though Nigeria is the world’s sixth-largest producer of crude oil.
Inability to refine crude locally makes jet fuel susceptible to exchange rate volatility. Crude price has risen above $73 per barrel (pb) but the naira is in a free-fall, now at N412 per dollar official rate and N503 in the black market.
As a deregulated arm of the dollar-dependent aviation industry, jet fuel price is directly proportional to the price of crude oil. However, during the plunge of crude oil price late last year, aviation fuel prices did not fall, The Guardian recalls.
Port clearance, road haulage add to costs
Olasimbo Betiku, Chief Operating Officer (CEO) of CITA Petroleum, a major marketer in local aviation, told the newspaper that Nigeria is a “situational economy” where pricing is heavily hinged on logistics cost elements.
Besides dollar and liquidity constraints, Betiku added, transporting the product through poor infrastructure increases price.
He said aviation fuel, like other products, is imported through the Lagos Ports where congestion delays cargo clearance for at least between four and seven days.
Each daily delay costs an importer an extra of between $10,000 and $25,000 per vessel. There are no such add-on costs at more efficient ports in neighbouring Cotonou, Benin Republic where clearance takes between three and four hours.
The risk of conveying the product in trucks is another huge challenge.
Since the early 1990s, moving aviation fuel from Mosimi pipeline to Lagos Airport has been abandoned for expensive road transport. The cost of transportation within Lagos is about N3 per litre; going up North to as far as Maiduguri, it costs N15.
Abuja collects N2.50 fuel surcharge tax per litre, in addition, to permit for operators, rent for tank farms, and access permits for airport equipment.
Betiku insisted that all of the cost elements, the majority of which are avoidable in a functional system, are passed on to consumers.
Said he: “Apapa delay is one of the infrastructural problems, with heavy cost implications.
“I remember [what happened] in February 2015 at the first African supply chain optimisation conference in South Africa, it was the time crude price was going down.
“Because the pricing of the product (Jet-A1) is directly proportional to crude price, people thought because Nigeria is a crude-dependent country, there will be an advantage for them to come to Nigeria to do the ad-hoc lifting.
“I had to explain to them that ours is a situational economy because of the challenges of infrastructure that are not in other countries. Our own peculiar situation is making the product to be higher than what it should be around the coast of West Africa.”
The dynamics of aircraft operations and fuel load factor, at landing or take-off, compels airlines to buy aviation fuel from local suppliers.
Betiku noted that marketers would not cluster in most airports, as they do in major airports, especially in the South, because of the huge capital involved and viability of facilities.
“The frequency of flight to a particular airport is the primary factor. Another is the cost of capital outlay to have a supply system in any airport.
“The product is available down South and you can move it at lower cost. That means people can easily site the asset down South than in the North.
“The solution is to have an economy that is growing across all layers. To grow the economy, we also need to develop the infrastructure along with the growing population.
“What of the support services from public and private sectors to oil the economy at large? We need to have a holistic view of the economy.”
Refining fuel locally will reduce cost
Skypower Express Airways CEO Mohammed Joji said it is unfortunate that aviation fuel is still being imported 100 per cent. Aviation fuel is just refined kerosene, he stressed, and should not elude local production.
In his view, “it is sad and unbelievable that a country with [four] refineries cannot refine Jet A1 for local use. Someone must be sabotaging the system; otherwise, we have no business importing fuel.
“The refineries are strategically located. Kaduna refinery takes care of the North, while Warri takes care of the South.
“As it is, you cannot travel from Maiduguri to Lagos by road anymore. So, you need to fly and you need fuel. We only need to refine the product locally and make it cheap, and about 40 per cent of the cost will be reduced.”
Aviation Safety Round Table Initiative (ASRTI) Secretary General, John Ojikutu, explained the state of fuel infrastructure borders more on safety than cost.
He said local operators and European Union Civil Aviation Authority (EUCAA), on behalf of European carriers flying to Nigeria, have reported contamination in fuel they bought in Nigeria.
Ojikutu, former Lagos Airport Commandant, expressed concern about how the authorities could exercise safety oversight and quality assurance on more than 200 trucks that transport Jet A-1 between depots and airports.
He urged the Nigerian Civil Aviation Authority (NCAA) to deepen oversight on aviation fuel suppliers to ensure quality is not compromised, adding that the price could be controlled if damaged pipelines supplying fuel to the airport are repaired.
“When these are done, you remove the cost of bridging the supply and contamination through trucking with tanks; you remove demurrage on the tanks for the period of waiting before discharge. All these are in addition to the cost of fuel and airlines operational costs,” Ojikutu said.
He recalled that trucks were used to supply aviation fuel when pipelines to the airport ruptured in 1992, and since there has been no effort by the Nigerian National Petroleum Corporation (NNPC) to repair them.
According to The Guardian, there have been proposals for the NNPC to
· Partner with marketers under the Joint Unified Hydrant Installation (JUHI) to repair the pipelines
· Or for the JUHI and airlines to jointly fix them
· Or for the repair, operation of the pipelines and hydrants to be concessioned to a private company for 20 to 30 years.
But none of the proposals has been implemented.
Ojikutu said: “Except the repairs are done or the NNPC/DPR and the NCAA enforce quality assurance on JUHI, the contamination through truck tankers transportation that have caused not less than eight serious incidents could begin resulting into serious accidents in future or even now.”
Failure to see aviation as a necessity
The International Air Transport Association (IATA), a clearinghouse for over 280 airlines worldwide, in 2018 ranked Nigeria and other African countries as some of the most expensive places to do aviation business.
The then IATA Director General and CEO, Alexandre de Juniac, said at the 50th Annual General Assembly of the African Airlines Association (AFRAA) in Rabat, Morocco that Nigeria and others need to ease the aviation business environment by paying more attention to infrastructure for massive growth.
“There is no shortage of examples illustrating the heavy burden that governments extract from aviation. Jet fuel costs are 35 per cent higher than the rest of the world,” Juniac said.
“User charges, as a percentage of airlines’ operating costs, are double the industry average. And taxes and charges are among the highest in the world.
“On top of that, $670 million of airline funds are blocked. Too many African governments view aviation as a luxury rather than a necessity. We must change that perception.”