As Hayatu-Deen asks government to review subsidy regime
Oil marketers have reacted to the aborted plan by the Airline Operators of Nigeria (AON) to shut down its operation because of the high cost of aviation fuel claiming that the operators are attempting to strong arm the federal government to control the price of the product.
The immediate past chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Tunde Oyebanji said in an interview that should the government give in to the pressure to control aviation fuel prices by fiat and the Nigerian National Petroleum Company (NNPC) Limited begins importing and selling to the airline operators below the market price, it would lead to another subsidy.
He stressed that the operators’ complaint over rising cost of operation is a ploy to make the government control the price of aviation fuel, which could create similar economic problems experienced with the fuel subsidy.
Recall that the AON had in a statement issued on Friday threatened to withdraw flight services nationwide over high cost of aviation fuel.
The association said aviation fuel had increased astronomically over time while airlines continued to subsidise their services “to our highly esteemed Nigerian flying public in the last four months.”
“Overtime, aviation fuel price (JetA1) has risen from N190 per litre to N700 currently. No airline in the world can absorb this kind of sudden shock from such an astronomical rise over a short period. While aviation fuel worldwide is said to cost about 40 per cent of an airline’s operating cost globally, the present hike has shut up Nigeria’s operating cost to about 95 per cent,” AON said.
Oyebanji questioned why the airline operators were not taking advantage of the opportunity given to them to import aviation fuel themselves if they are complaining of the cost they buy the product from the current oil and gas importers.
Oyebanji said the solution to the rising cost of Jet A1 is for airline operators to increase ticket price to reflect the hike in cost of operation, and allow air passengers pay for it.
“Airline Operators are trying to pressurise the government to control prices by fiat. In the alternative, let people pay the appropriate price for airline tickets. Aviation is not a social welfare business. Why are international airlines that we also sell to, not threatening to stop flights,” he said in an interview with Thisday.
He said it was surprising that airline operators had not been able to proceed with plans to import aviation fuel even after the opportunity was given to them.
Maintaining that the price of ATK followed the international price of the product and the exchange rate, Oyebanji said the cost of importing the product was high.
For his part, the chairman of MOMAN, Mr. Olumide Adeosun, said the Russia-Ukraine war, foreign exchange scarcity, inflation, as well as logistics and administration costs were principal factors driving the increasing price of aviation fuel in the international and local markets.
Adeosun said the product’s dealers in the international market were putting a premium on demand and supply and were selling their products to the highest bidder, making it difficult for local marketers to import the product and sell at a cheaper rate.
“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,” Adeosun said.
“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.”
He added that international airlines entered into long-term contracts, which allowed them to secure supply of products for a long time and pre-empt the price of ATK on a month-on-month basis.
According to Adeosun, airline operators in Nigeria bought products on demand.
“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,” he said.
Meanwhile, a presidential aspirant on the platform of the Peoples Democratic Party (PDP) and former managing director of the defunct FSB International Bank, Mr. Mohammed Hayatu-Deen, has asked the federal government to review the subsidy system as part of efforts to address the hike in aviation fuel price.
“The economy is fast approaching failure because of neglect and living in denial of policy makers at a time when industry-wide passenger revenue growth is increasing due to the risks and hazards of rail and road travel. As a consequence of this, airlines should be making more money and reinvesting in seat capacity,” the statement reads.
“But this is not the case because of pricing distortions and the consequences of a dysfunctional subsidy regime. It is not rocket science to know that jet fuel represents 40 per cent of the direct operating costs of airlines. Therefore, a 250 per cent increase in the price of this input has completely eroded the thin margins of airline operators.
“The government, as a matter of urgency, to embark on a two-pronged approach to mitigate the cataclysmic and systemic risk this development poses to an already fragile economy afflicted by enormous power shortages.
“First is the immediate need for a massive increase in supply by an import intervention to push down prices and stabilise the market. The other being a more fundamental and strategic move to address the structural imbalance of the industry. This will entail fast tracking the revamp of the moribund refineries and accelerating the commissioning of the private refining capacity.
“These, together with an efficient review of the failed subsidy system, will bring down prices whilst simultaneously increasing output of refined products including jet fuel, diesel and PMS, thus bringing the industry into full and dynamic equilibrium.
“The transportation and energy sectors are very critical to productivity, output and employment because of their strong linkages.
“Nigerians are already feeling the weight of excruciating economic and social problems, and they do not deserve to be placed under additional unbearable stress,” he added.
