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Aviation fuel scarcity: MOMAN asks airline operators to clear debt, adopt pricing formula

Aviation fuel scarcity: MOMAN asks airline operators to clear debt, adopt pricing formula
March 16
14:38 2022

The Major Oil Marketers Association of Nigeria (MOMAN) has urged airline operators in Nigeria to clear outstanding debts and adopt a pricing formula for the procurement of aviation fuel. 

NAN reports Clement Isong, executive secretary, MOMAN, said this on Wednesday in Lagos.

Airline operators had alleged that some marketers are hoarding aviation fuel, also known as Jet A1.

According to him, many airline operators were owing marketers and other industry players millions of naira. 

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“For the local airlines, there are two challenges. First of all, they don’t like signing binding contracts based on a pricing formula. They prefer running from one marketer to another trying to get products at cheaper rates,” he said. 

“Secondly, many of them are owing. They are owing millions of naira to the industry, not just marketers alone. When they finish from one marketer, they run to another one.”

According to him, the marketers are demanding that the airlines pay up their debts because the burden on the industry is becoming too much.

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He said adopting a pricing formula meant the marketer must commit to a volume of products that would be supplied to the airline within a specific period.

“The pricing formula means that you buy over a period of one month a certain quantity of products, and the airline must pick that product,” Isong said. 

“So when they have agreed, you go and buy that volume, and you keep for them, but if they don’t agree, you can’t keep that volume for them.

“This is what the Group Managing Director of Nigerian National Petroleum Company Ltd., Mele Kyari has asked them to do.

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“There are international best practices that they need to adhere to in running their businesses.

“This includes a pricing based formula committing to volumes and also clearing their outstanding debts to ensure smooth operations in the sector.

“If they adopt this method, marketers can take the risk of buying products and keeping for them in our tank farms, but they need to commit to volume because that is how the business is done.”

Isong said MOMAN was in talks with airline operators to ensure an adequate supply of aviation fuel.

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He said the engagement followed the intervention by the house of representatives and supervision of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). 

“We understand their pains even the federal government that is paying a higher cost to subsidise petrol,” he said.

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Isong ascribed the hike in the price of crude oil and its derivatives to the ongoing Russia-Ukraine crisis.

“The rise and fall of oil prices are cyclical. We have been here before, and we are hoping that within a short period, the international supply of crude will adjust to meet demand, and prices will come down to more acceptable levels,” he said. 

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According to him, the situation could also ease off if marketers can get foreign exchange at moderate rates instead of sourcing from the parallel market.

Isong, however, advised the domestic airlines to change their business mechanisms to enable them to get a steady supply of aviation fuel to run their operations.

“There is aviation fuel in the country. However, the product is expensive. Many of us who have contracts with international airlines have to keep stocks for them,” Isong said.

“Now, international airlines pay for their products based on a pricing formula, so it is predictable. There is no quarrel on the price. It is Platts plus Premium.

“The Premium is fixed. The Platts, which is a price benchmark service for the oil industry, goes up and down depending on the international market price.”

Isong added that the pricing template is transparent and predictable.

“I should also add that we buy the product in forex and the foreign airlines pay in forex. So there is no forex risk,” he added.

On Monday, the Nigerian National Petroleum Company (NNPC) Limited had said it would grant a licence to the Airline Operators of Nigeria (AON) to start importing aviation fuel, otherwise known as ATK.

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