The chairman, Major Oil Marketers Association of Nigeria (MOMAN), Olumide Adeosun, has revealed the reasons cost of aviation fuel, Jet A1, is rising amid threats from airline operators to discontinue business.
Factors fuelling the rise of Jet A1 price, according to Adeosun, were beyond the control of the oil marketers in Nigeria, and has to do with global markets’ reaction to the Ukraine war amongst other reasons.
The airline operators have been lamenting about the impact of the rising aviation fuel on their operation, threatening to shutdown their business in response to the hike in Jet A1 price.
Ripples Nigeria had previously reported that the aviation fuel skyrocketed to N700 per litre from N190, while the airline operators in March had increased ticket cost, with plan for further hike before the Federal Competition and Consumer Protection Commission (FCCPC) directed the firms to halt the price, labelling it price fixing.
In a bid to absolve the oil marketers from blame as regards the rising cost of Jet A1, Adeosun, who is the Chief Executive Officer of Ardova Plc, pointed out five factors driving the cost to ThisDay on Sunday.
He listed the Russia-Ukraine war, which was renewed on February 24, 2022, as a factor, mentioned rising inflation, as well as logistics and administration costs of the oil marketers.
Adeosun also faulted the foreign exchange scarcity for the rising cost, stating that these are reasons the oil marketers can’t supply at a cheaper cost. He explained that the international market was selling at a premium to the highest bidder.
“Russia controls over 30 per cent production. What we are seeing is that traders are putting premium attention on the price of aviation fuel because all of us are scrambling for exactly the same barrel.
“So, the traders are paying premium attention on demand and supply and they are selling to the highest bidders only. We should try and look at the financial factors and the predominant driver, look at all of the issues around storage cost, administration cost, and, of course, you have to think about where you are going to buy your next round of products from.” Adeosun said.
How domestic airlines can avoid cost issue in future
Adeosun said domestic airlines should enter into longterm contracts with oil marketers to avoid sudden rise in Jet A1, stating such deal is why their foreign counterparts are not complaining.
He explained that the foreign airlines are strategic in their business transactions with the oil marketers, by entering into a longterm agreement, which gives them a long term security on the aviation fuel.
The Ardova boss explained that airlines can pre-empt the price of Jet A1 on a month-on-month basis by signing long-term contracts, which allows for long term products supply.
It was gathered that the domestic airlines only purchase fuel when they plan to fly, rather than a long term supply, like a Uber business, “You cannot do that when your business is dependent on the availability of fuel.
“Aviation fuel is not like petrol for taxi. You are not driving Uber. So, this is a very serious business that requires strategic planning.” Adeosun said.
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