NIGERIAN AVIATION AND THE FUEL CRISIS

HAWKER 400 5N-FGX AIRPLANE: RC066

Insufficient jet fuel supply and price volatility are major sources of disruption to flight schedules, writes Felix Oladeji

Air transport with its associated complex networks is a major source of transportation for people, goods and services globally. Nigeria is the most populous country in Africa. The Nigerian aviation industry has grown over the years in terms of size, capital investment, safety and quality management systems, which provides several benefits to the Nigerian economy. The air transport sector contributes around N59 billion to the national GDP; it supports about 159,000 jobs and pays around N8.5 billion in taxes annually. It facilitates the fast and reliable movement of high value products to be weighed, i.e. cargo for shippers. Air transport stimulates and supports tourism, and it has created opportunities for several international companies, creating commercial links for export purposes.

Aircraft in Nigeria run on civil grade aviation turbine kerosene (ATK), specifically jet A-1 fuel. Jet fuel is a middle distillate, and it belongs to the kerosene family. Nigeria’s three refineries do not currently produce jet fuel, and as such, domestic jet fuel consumption comes from imports from foreign refineries. In 2017, Nigeria imported 340.33 million liters of household kerosene (HHK) and 592.73 million liters of aviation turbine kerosene, while 554.61 million liters of ATK were distributed throughout the country via tanker trucks. Between 1986 and 2012, Nigeria consumed an average of 1,253,155 liters of jet fuel per day.

Fuel scarcity in Nigeria has a negative impact on sustainable economic development due to its crippling effect on energy-dependent productive activities. Kerosene shortages and the resulting flight disruptions and cancellations are sometimes an annual occurrence in Nigeria. These problems are usually due to import problems, licensing difficulties and scarcity of foreign exchange. From 2004 to 2008, the price of jet fuel per liter nearly tripled in America. In Nigeria, fuel price spikes and scarcity peaked between 2015 and 2017 when the country went into recession due to the global drop in crude oil prices, and the value of the naira fell significantly against the dollar. Nigeria earns more than 90% of its foreign currency from the export of oil and gas, which makes the economy sensitive to changes in crude oil prices on the world stage.

Adequate fuel supply and availability is vital for economic sustainability. Kerosene accounts for more than 30% of an airline’s operating expenses. The price of jet fuel is one of the factors that determine the profitability of airfares and airlines. The aviation industry is plagued by jet fuel shortages leading to flight delays, rescheduling and cancellations. Kerosene scarcity and escalating costs are the product of multifaceted financial, logistical, managerial and political factors.

However, Nigerian airports are labor intensive rather than capital intensive. To maximize efficiency in all aspects of the operation, proper attention to airport management is of the utmost importance. The Federal Airports Authority of Nigeria (FAAN) needs to develop policies that take into account the heterogeneous nature of Nigerian airports. Here are the critical operational and economic challenges that militate against the steady supply and ready availability of jet fuel in Nigeria, creating a mismatch between jet fuel demand and supply. These factors stimulate an excessive increase in the price of kerosene, which makes business difficult for commercial airlines. Few of these airlines have become insolvent due to high operating and maintenance costs. All kerosene consumption in Nigeria is imported; this creates pressure on the jet fuel supply chain. Jet fuel supply companies, both national and multinational, are privately owned with no state investment. Jet fuel is imported by these companies or by Intermediate Land Depot (ISD) owners depending on their business projections and financial resources. Therefore, importation may not be sufficient to meet domestic needs. Also, the import schedule is not very well structured and this arrangement can easily lead to supply disruptions.

More importantly, the process of obtaining kerosene import licenses and other financial and fiduciary documents takes time. Setting up a contractual agreement with foreign refineries also takes time and resources, as it may require traveling to the refinery site to discuss and finalize the agreement. Therefore, to ensure bulk importation and reduce the number of vessel trips, large capacity fuel tankers are used for importation, but this creates a challenge on the Nigerian side due to shallow waterways. In Lagos, for example, jet fuel is unloaded at the Apapa jetty area, where many ISDs are based. The inland waterways to the jetty terminals are shallow, with a draft of around 7m to 10m. This implies that large and heavy ships cannot approach such a narrow channel. Therefore, it becomes mandatory for large ships to dock on the high seas, and then lighter ships are then used to unload larger ships and transport fuel to the ISD. This increases operational logistics and vessel turnaround time. Proper supply chain management is necessary for timely and cost-effective product distribution to ensure product availability at a reasonable price.

In addition, the industry should encourage local production of jet fuel by issuing refinery operating licenses to willing investors. Such a license to operate should be conditional and time-limited to avoid people grabbing permits without implementation. The three already existing refineries in the country are expected to undergo capacity upgrade maintenance, and jet fuel should be included in the output lineup to complement the import. Jet fuel transportation using BRV is not optimal, Mosimi pipeline should be renovated or a new one built to facilitate direct jet fuel supply from ISD to the airport. This will eliminate traffic from Apapa, ensure prompt delivery of jet fuel and reduce transportation costs. Tank cars can be considered as an alternative.

Also, the high cost of overseas aircraft maintenance can be avoided by setting up a maintenance, repair and overhaul (MRO) facility in Nigeria. The approval of C-check maintenance for classic Boeings by the Nigerian Civil Aviation Authority (NCAA) is a welcome development. Jet fuel price volatility can be managed by airlines through jet fuel hedging to limit their exposure to rising jet fuel prices in the future.

Multi-element Key Performance Indicators (KPIs) should be developed to track and measure the performance of the Nigerian aviation fuels sector and airports using key industry metrics. All on-board companies must subscribe to compensation agreements for the refueling of aircraft (Tarbox) with insurers for the management of liability risks related to the refueling of aircraft.

Air transport is essential for business and other economic activities in Nigeria. It is a source of revenue for the country, generating revenue from both passenger and cargo movements. It also creates various related service businesses and thousands of jobs for citizens. Unavailability of jet fuel, insufficient supply and price volatility are significant sources of disruption to flight schedules and regular airline revenue.

Therefore, the government must deploy adequate interventions and policies to arrest the negative trend and create stability in the aviation sector. This will ensure profitability, motivate private sector investment and eliminate the suffering endured by passengers each year due to flight delays, rescheduling and cancellations induced by the high cost and scarcity of jet fuel.

Oladeji writes from Lagos

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