CITA Energies Seeks Review of Dangote Refinery's Jet A1 Pricing Formula

CITA Energies, one of Nigeria's leading indigenous aviation fuel marketers, has called on Dangote Petroleum Refinery to review the pricing structure it applies to Jet A1, arguing that mismatches between the refinery's formula and global benchmarks are keeping the cost of jet fuel high for airlines.

Dr Thomas Ogungbangbe, the company's chairman, made the appeal on Friday in Lagos during celebrations marking CITA's 20 years of operations, saying that while local refining had ended the scarcity of aviation fuel, the pricing arrangements attached to it had created new uncertainties for marketers and their airline customers.

Two formulas that do not match

Aviation fuel contracts worldwide are typically priced on a month-minus-one basis, using the average of published benchmark prices in the preceding month. Marketers selling in October, for instance, price against the September average, which gives both buyer and seller visibility of costs in advance.

Dangote Refinery, Ogungbangbe explained, operates on a different arrangement known as "BL plus five", under which the final purchase price can be determined up to five days after loading. "You can even be selling in Lagos without knowing the price at which you bought the product," he said, describing the gap as the major challenge facing marketers.

A premium, a lien and red figures

The CITA chairman also criticised an additional premium introduced by the refinery around March, during unrest in the Middle East, which has not been removed. Because the premium is not part of the global formula, marketers can only pass it on to customers, he said, adding that this is why airlines have been vocal about fuel costs.

A third complaint concerns a requirement that 25 per cent of the value of payment instruments submitted by buyers be placed under lien until reconciliation. A marketer presenting a $10 million instrument, he noted, would be serviced for only $7.5 million initially while paying financing costs on the full amount, sometimes for weeks.

The combined effect, according to Ogungbangbe, is that CITA's accounts are now "a sea of red figures", to the point where the company sometimes advises customers to buy from competitors rather than execute loss-making trades.

Single-source risk

Titilayo Olaore, CITA's acting managing director, said marketers now operate under what she called a "one-source justification hazard", all buying from a single major domestic supplier, which leaves prices between marketers varying by only about N5 a litre and removes room for competitive discounting. Aviation fuel accounts for at least 40 per cent of Nigerian airlines' operating expenses.

The appeal

Ogungbangbe acknowledged that Dangote had eradicated jet fuel scarcity and praised the refinery for opening the market to indigenous operators, but asked it to remove the March premium and align its pricing with international practice. Whether the refinery responds will shape not only airline costs but the credibility of the promise that local refining would make fuel cheaper.