Inadequate supply of Jet fuel and price volatility are significant sources of disruption to flight schedules, writes Felix Oladeji
Air transportation 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 size, capital investment, safety and quality management systems which provide several benefits to the Nigerian economy. The air transport sector contributes about N59 billion to the national GDP; it supports about 159,000 jobs and pays about N8.5 billion in tax annually. It aids the fast and reliable movement of high-value to weight products, i.e., cargo for shippers. Air transportation stimulates and supports tourism, and it has created opportunities for several international businesses, creating market links for export purposes.
Aircraft in Nigeria run on civil grade Aviation Turbine Kerosene (ATK), particularly jet A-1 fuel. Jet fuel is a middle distillate, and it belongs to the kerosene family. The three refineries in Nigeria currently do not produce jet fuel, and as such national jet fuel consumption is sourced via importation from foreign refineries. In 2017, Nigeria imported 340.33 million litres of household kerosene (HHK) and 592.73 million litres of aviation turbine kerosene, while 554.61 million litres of ATK were distributed nationwide via fuel trucks. Between 1986 and 2012, Nigeria consumed an average of 1,253,155L of jet fuel per day.
The scarcity of fuel in Nigeria negatively impacts sustainable economic development due to its crippling effect on energy-dependent productive activities. Jet fuel scarcity and consequential flight disruptions and cancellations are sometimes a yearly occurrence in Nigeria. These issues are usually due to importation challenges, licensing difficulties, and foreign exchange scarcity. From 2004 to 2008, the price of jet fuel per litre almost tripled in America. In Nigeria, soaring fuel prices and scarcity reached a peak between 2015 and 2017 when the country fell into recession because of the global drop in crude oil price, and the value of the naira fell significantly against the dollar. Nigeria earns over 90% of its foreign exchange from oil and gas export, making the economy susceptible to crude oil price variations on the global scene.
Adequate fuel supply and availability are vital for economic sustainability. Aviation fuel accounts for more than 30% of an airline’s operating expenditure. Jet fuel price is one of the factors that determine airfare and airlines’ profitability. The aviation sector is plagued with jet fuel scarcity and this results in flight delays, rescheduling, and cancellations. Jet fuel scarcity and the escalating cost are products of multifaceted factors that are related to finance, logistics, management, and policy.
However, Nigerian airports are labour intensive rather than capital intensive. To maximise efficiency in all the aspects of the operation, adequate attention to airport management is of utmost importance. The Federal Airports Authority of Nigeria (FAAN) needs to develop policies that consider the heterogeneous nature of Nigerian airports. The following are critical operational and economic challenges that militate against the smooth supply and ready availability of jet fuel in Nigeria, creating a disparity between jet fuel demand and supply. These factors stimulate an excessive increase in jet fuel prices, making business difficult for commercial airlines. Few of such airlines became insolvent as a result of high operational and maintenance costs. All jet fuel consumption in Nigeria is imported; this creates pressure on the jet fuel supply chain. Jet fuel supply companies, both indigenous and multinational, are privately owned with no state vested investment. Jet fuel is imported by these companies or by Intermediate Shore Depots (ISD) owners based on their business projections and financial resources. Hence, importation may not be sufficient to meet the national needs. Also, the importation timeline is not very well structured, and this arrangement can easily result in supply disruptions.
More importantly, the process of obtaining jet fuel import licences and other financial and fiduciary documents takes time. Setting up a contractual arrangement with foreign refineries also takes time and resources, as this may require travelling to the location of the refineries for discussions and to finalise the deal. Hence to ensure bulk importation and reduce the number of ship trips, large capacity fuel cargo ships are used for importation, but this creates a challenge at the Nigerian end due to shallow waterways. In Lagos, for example, jet fuel is offloaded at the Apapa jetty area, where many ISDs are based. The inward waterways towards the jetty terminals are shallow, with a draft of about 7m to 10m. The implication of this is that big and heavy ships cannot approach such a narrow channel. Hence, it becomes mandatory for the big ships to berth deep at sea, and then lighter vessels are then used to offload the bigger vessels and transport the fuel to the ISD. This increases operational logistics and ship turn-around time. Adequate supply chain management is necessary for the timely and cost-effective distribution of products towards ensuring product availability at a reasonable price.
Moreover, the industry should encourage local production of jet fuel by issuing refinery operating licences to ready investors. Such an operating licence should be condition-based and activation-time bound to prevent the issue of people collecting permits without implementation. The already existing three refineries in the country should undergo capacity upgrade maintenance, and jet fuel should be included in the output product mix to complement importation. Jet fuel haulage using BRV is not optimal, the Mosimi pipeline should be refurbished or a new one constructed for facilitating the direct supply of jet fuel from the ISD to the airport. This will eliminate the Apapa traffic, ensure fast delivery of jet fuel and reduce transportation costs. Rail tankers can be considered as an alternative.
Also, the high cost of aircraft maintenance abroad can be avoided by setting up a Maintenance, Repair and Overhaul (MRO) facility in Nigeria. The approval of the C-check maintenance of Boeing classics 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) need to be developed to track and measure the Nigerian airport and aviation fuel sector performance using key industry parameters. Mandatorily all into-plane companies must subscribe to the Aircraft Refuelling Indemnity (Tarbox) Agreements with insurers for managing aircraft refuelling liability risks.
Air transportation is critical to businesses and other economic activities in Nigeria. It is a source of revenue for the country, generating earnings from both passengers and cargo movements. It also creates various related servicing companies and thousands of jobs for the citizenry. Jet fuel unavailability, inadequate supply, and price volatility are significant sources of disruption to flight schedules and steady airline income.
Hence, the government must deploy adequate interventions and policies to arrest the negative trend and create stability in the aviation sector. This will guarantee profitability, motivate private-sector investment, and eliminate the sufferings passengers endure yearly due to flight delays, rescheduling and cancellations induced by the high cost and scarcity of jet fuel.