The Intermediary Deal between Airlines and Fuel Marketers Reviewed

The House of Representatives and the Nigerian National Petroleum Company Limited (NNPC Ltd) facilitated a deal between petroleum products marketers and airline operators Last week, to keep the price of Aviation Turbine Kerosene (ATK) at N500 per liter.

The ATK is popularly known as aviation fuel. The agreement was reached on Monday, the second day of the investigative hearing of the House of Representatives Ad hoc Committee on High Cost of Aviation Fuel which was held at the National Assembly Complex, Abuja.

Presenting the agreement’s highlights, NNPC’s CEO Mele Kyari stated that both parties were represented. The Major Oil Marketers Association of Nigeria (MOMAN) and the Depots and Petroleum Products Marketers Association (DAPPMA) represented the petroleum product marketers.

On the other end, the aviation industry stakeholders were represented by the Airline Operators of Nigeria (AON) and the Nigerian Civil Aviation Authority (NCAA). Both groups agreed to have the pump price of aviation fuel pegged at N500 per litre for the next three days.

“In the next three days, representatives of MOMAN, DAPMAN and Airline Operators of Nigeria would sit down and adopt transparent bases of pricing,” stated Mr Kyari. “That as requested by the Association of Airline Operators of Nigeria, they will be granted a licence by their authority to also import ATK so as to have a way of benchmarking prices.

“They will also have a reference exchange rate for the naira.”

The stakeholders also resolved to engage and agree on a premium that would be different from client-to-client depending on the volumes they want to buy and the credit limit that each marketer can permit. This is expected to help establish a transparent basis for pricing, eliminate price discrepancies, and throw up the product’s real market value.

Earlier, the executive director of Systems, Storage and Retailing Infrastructure of the Nigerian Midstream and Downstream Regulatory Authority (NMDPRA), Ogbogu Ukoha, highlighted some factors that sent the price of ATK over the roof.

“One of the major factors influencing the high cost of ATK remains the issue of availability of forex, that is, the source from which marketers acquire their dollars either from the Central Bank of Nigeria (CBN) or the parallel market,” explained Mr Ukoha. “When that is added to the fact that ATK is deregulated, it becomes a commercial dilemma whereby marketers can’t sell below certain price due to forex barriers and challenges of landing cost.”

He further mentioned that “airline operators insist that they can’t buy products above a particular amount if airfares will remain affordable.”

Speaking in a similar vein, the DAPPMA secretary Olufemi Adebayo explained that the scarcity of forex was a major issue in the rising price of ATK.

“If we can buy dollars at N410 or N420, the price will be different. Unfortunately, we cannot. What you buy from the street is different from what you get from the banks, and for dollar, the more you want it, the cheaper it’s not,” he noted.

On his part, MOMAN chairman Olumide Adeosun stated that part of the challenge with ATK pricing was that it is the most difficult to handle of all the middle distillates because it requires extra licensing to produce.

“There are refineries in Nigeria today that produce ATK but can’t sell the product because it has to be licensed. Some of the modular refineries that produce diesel in the country can produce ATK, but these refineries are not certified for such production,” he said.

Mr Adeosun also disclosed that the look-back method of determining the price of ATK in the aviation sector lends itself to abuse by airlines that often want to take advantage of price variations in the market.

“Aviation fuel price index is determined by the previous month’s average. Habitually, product buyers want to take advantage of price variations in the market, which sometimes trigger loss,” Mr Adeosun pointed out. “You can buy products today when it is expensive and sell at a loss tomorrow, considering how the price index is determined on a look back.”

Speaking on behalf of the AON, Allen Onyema, Air Peace chairman, thanked the NNPC boss and the leadership of the House of Representatives for their forthright approach to the ATK price hike issue and pledged the group’s commitment to the welfare of Nigerians.

Deputy Speaker Idris Wase commended Mr Kyari and other stakeholders in his closing remarks, for reaching an amicable agreement. He said the house would continue to provide the needed support to ensure the welfare and security of Nigerians.