Aviation fuel marketing companies not suffocating airlines – Dr Ogungbangbe

Dr. Thomas Ogungbangbe, CEO and founder of CITA Aviation Fuelling Company Limited, oversees Nigeria’s largest aviation fuel operation across 16 airports. As a strategic partner of IATA, he discusses jet fuel marketing in Nigeria, its challenges, prospects, and the way forward. CHUKWUEMEKE IWELUNMO, brings you the report.

As a dealer, what is your assessment of the challenges in obtaining aviation fuel in Nigeria?

Over the decades, there have been myriads of challenges when it comes to the issue of aviation fuel because incidentally, we have never had a situation in Nigeria where we have a refinery that could make a litre of aviation fuel. So even when the three refineries were working, they were not configured to crack aviation fuel.

So, over the decades, we have always imported jet fuel, and it got to a particular point of getting out the product every six weeks by the international economies holding sway then. It became a source of worry to the government and incidentally when the government way back then deregulated jet fuel; it also gave the opportunity for other independent companies to be able to come in. This also helped.

There was a time we had a ministerial committee on aviation fuel pricing and availability. But today, with the coming of the Dangote Refinery, jet fuel is now available in our neighbourhood. I want to believe that the issue of unavailability which has faced us over the decades will be a thing of the past.

As regard pricing, the product, just like you know the entire aviation industry, is an elitist one and everything about aviation is supposed to be transparent and trustworthy. So, aviation fuel is not a local product that the price is determined by the Nigerian government or any government of the world. It is a global product whose prices are announced on a daily basis in the world market.

What is wrong with the price is our own exchange rate, which is a bit on the high side for now. That is what is calibrating the price, and it is not as if the marketers sit somewhere and just fix prices to kill the airline operators.

Even the international airlines, their decisions are not made in Nigeria. They are made in their countries of origin. Everybody knows the benchmark which is indicated on the announcement of the global pricing modulation announced on a daily basis by publications like Platts, Bloomberg and others. Anybody that is a subscriber can get access to it and that is how international airlines are able to use formula price.

The formula pricing is to say if you are a subscriber of Platts, which is a publication company, any Platt’s publication plus tax of the country of origin like the Nigerian tax, plus the premium. The premium is just our own logistics and margin which is negotiated with them, and we log it in for one year. What they do is because of the complexities of what they do, they use the report of Platts of months before because we are in one year contract. For example, in the month of June, we are using the Platts of May. In July, we are using the Platts of June so that everybody is in the clear.

So, it isn’t the aviation fuel marketer that influences the price. I understand that the fuel cost may be about 40 per cent of what the airlines need. If fuel costs 40 per cent of their revenue, that is a lot, but it is not the making of the oil marketers to profit and I am sure in Nigeria today and when some of us were like trainees some decades back, there were just six companies but today, we are 40.

Basically, I can say with a remarkable amount of accuracy that there is no oil marketing company that is suffocating the airlines or trying to kill them, it is just a benchmark of global pricing. If we have a reason or if we find out that the refinery gives us a price that is below global benchmark, we will also translate it because we are in competition.

What impact will Dangote Refinery have on the price of aviation fuel?

The refinery on its own may not have any impact in terms of pricing because it is not an NGO. They also buy crude using the global benchmark and they also need to make profit. So, we do not anticipate that they are going to be selling at some discounts because there is a world benchmark. Even if they sell way below what it is, which means you are probably promoting the kind of practice that we have gone beyond, where people buy products at a cheap price and take it out again to other countries to sell because it is criminally attractive. We are not going to go to that area again.

I do not see a major drop in price but where the pricing advantage will come from based on Dangote Refinery is if I take a vessel of product from Togo because we don’t have the facility in Nigeria where we can have our big ship …to do some ship-to-ship transfer. We do all of that in Togo and between Togo and here, just for a vessel, you will spend like one million dollars. And of course, as entrepreneurs, you need to recoup your money. So, if you take that off, it is a lot. It’s not only in petroleum products; it is applicable to even the other items.

If we are able to restore security to Nigerian waters, even if it is outbound Lagos, it will go a long way to reducing the unit cost of items. In fact, it may affect aviation fuel by almost N20 a litre.

If we don’t have a home advantage with Dangote Refinery, can it be said that the global aviation fuel market is operated by a cartel?

No. It is not like that. I will not use the word cartel. We are going to have a situation where I mentioned that Dangote Refinery has solved the issue of availability. In terms of pricing, it will just be a marginal one. And that marginal one is based on logistics because for example, if you are investing ten million dollars to buy a product and you are investing another one million dollars to bring the product even from Togo, one million is a lot. By the time you divide it by the volume of product you are bringing in, it will go to the unit cost. They also buy crude, not only from the Nigerian market but from the world market.

The way things are, it is just like any commodity; it is a function of demand and supply, and it is a global thing. What those publication companies do is to report what has happened in the global market on a daily basis, not that they are the ones pushing it.

They are not the ones, but the oil companies are the ones doing it on their own. You are selling and I want to buy. I also want to sell to the airlines. We negotiate and I take investment decisions.

Could the jet fuel delivery pipelines to airports be revived with private sector involvement if the government is no longer interested?

There is a 98km pipeline that was laid by the federal government from Atlas Cove through Mossimi to Ejigbo depot and from there to this airport (Murtala Muhammed). If you go behind there, you see where the pipe came out from the ground to enter somewhere here.

To the best of my knowledge, the pipeline usage was stopped in 1998 and that was when there was an air accident in Kano which involved the son of the late head of state, General Sani Abacha. It was that accident, which journalists first reported that it was aviation fuel. That was the investigation that they were doing that stopped the pipeline. Ever since then, it was never revisited. If this is revisited, it will take not less than 1,000 trucks off the roads of Lagos.

CITA as a company has even written to the Lagos State government to take this up with the federal government. The Aviation Fuel Marketers Association of Nigeria (AFMAN) also wrote to the NNPC.

The pipeline was used when the government was responsible for supplying jet fuel, which is not the situation now since it is being deregulated. I can also tell you that even as at then, whatever that was pumped from the waters was not the quantity we usually received. Maybe some litres developed wings in-between. However, it was easier to contain under the federal government.

Modular refineries have been suggested as alternatives to boosting supply of Jet fuel. Is this possible?

Modular refineries cannot make jet fuel because for you to make jet fuel there are conditions precedent to cracking the crude. Jet fuel must be passed through the catalytic chamber of the refinery; if it is going for jets, any crude that would be used must have to go through the hydrogen chamber. So that hydrostatic process is a very expensive one. And that is what is even lacking in our refineries in Port Harcourt, Kaduna and Warri. That is why they couldn’t make any jet fuel, not that they were not making kerosene. And we know that the household kerosene and aviation turbine kerosene have basically the same chemistry. That is why their family name is DPK – Dual Purpose Kerosene – because it can be used as household kerosene (HHK) or aviation turbine kerosene (ATK).

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Despite the fact that they share the same chemistry, not one litre of kerosene made in these refineries was used to fuel the aircraft because the crude oil did not pass through the hydrogen chamber which is called hydro-processing.

The crude has to be hydro-processed, and the hydro-processing chamber is even more expensive than everything put together as a modular refinery. It is a very expensive process and because of that, modular refineries are incapable of doing jet fuel. They can do kerosene but not jet fuel unless they have that hydro processing chamber.

How do you ensure high quality of fuel to the airlines?

Our aspiration as aviation fuel marketers is to give to our airline customers good quality dry fuel. To achieve this, we ensure that the hyper filtration approach is observed. At the littoral region of the marine terminals where we receive it from the vessels, we get the product filtered into the tank and out of the tank. We use dedicated upload vehicles that should not carry any other product except jet fuel, not even to carry household kerosene.

Most of all these tanks must be aluminum or stainless steel. When they come in travelling by the roads, we lock them up in a watertight and airtight situation. They are sealed up and down locked.

When they come in here, the sealed number is already provided incognito. So, if the sealed number is not the seal that you see then they don’t discharge. If it has been tampered with, they don’t discharge. Despite that, the next thing is to measure the quality and quantity. So, they first do the quality test before they release the product to be discharged.

When it is discharged, they first come into contact with something that is called the filter water separator. We have the air eliminator that will remove air so that whatever that is counted by the meter is what is there. Air is removed, debris is removed, and water is removed. So, all you have inside the tank is good quality jet fuel.

Jet fuel takes 70 to 75% of airline running costs. By your assessment, what is the impact on air travel?

Our (profit) margin in cents per gallon or naira per litre is the same that we made when fuel was N200 and when it is N1, 250 or N1, 300 today. What is changing is not like maybe some marketers come together to say this is the price fixture. No. There is competition and the government has deregulated the product, and it is open for anybody to bring in from anywhere and sell at a competitive rate; that is just a capitalist approach. So that is what is being observed. For people to be able to afford it or not is a function of the economy. I know that between 30 to 40 per cent of the airlines’ revenue goes into jet fuel but that is not only a Nigerian thing, it is a global business.

The only thing is that when the economy is improved many more people will be recruited from the roads to fly. The figure we have for the flying public is still very low. Am sure maybe we have below 25 million travelers and how many times am I represented in that 25 million. If you look at the absolute number of people that are travelling, you may not have more than 10 million or 15 million. At the end of the day, for a population as robust as 250 million, there is no reason why Nigeria should not use that as a calibration measurement or a trajectory to say by year 2030, we should get up to 250 million travellers.