Why kerosene price remains high, by PPPRA

The Executive Secretary of the PPPRA, Reginald Stanley, has identified factors responsible for the high cost of kerosene at the retail end in the country.

He listed the challenges to include long chain of handling, smuggling because of the huge arbitrage in price, use of kerosene in diesel blending and fuelling aircraft as well as blending cut-backs to produce emulsion used in road construction, among other factors.

According to him, “due the complexity of the kerosene value chain” it has one of the longest handling challenges and at any point it changes hand; it is at a premium, hence the very high cost at the retail end.”

He explained that there were two grades of kerosene, which are Aviation Turbine Kerosene (ATK) and House Hold Kerosene (HHK).” ATK is used in fuelling aircraft while HHK is used in domestic cooking and lighting homes.

The executive secretary stated that it was the global trend for refineries to produce mainly ATK for the aviation market. “However, Nigeria, Venezuela, India and Libya are among the few countries, whose refineries are still producing HHK.”

Stanley noted that due to the inability of Nigeria’s refineries to produce enough kerosene to meet the increasing demand, it became necessary to import the ATK grades Kerosene commonly referred to as Dual Purpose Kerosene (DPK).

“This grade meets also the HHK which actually is a lower grade of kerosene.”

He described DPK as superior diesel as it blends perfectly well with diesel, noting that just blending one litre of Kerosene gives the marketer N100/litre extra profit.

“Consequently the temptation to blend DPK with AGO is very high.”

He identified this as the beginning of the kerosene challenge, saying that imported kerosene went into many uses — part of it finding its way into the aviation market while a substantial quantity finds its way into the blending of cut-backs to produce emulsion used in road construction.

“A sizable quantity makes its way through the boarders into neighbouring countries because of the huge arbitrage opportunity, while the remaining goes into diesel blending.

“Consequently, what is left entering the real domestic market is very much restricted,” he added.

“The executive secretary explained that a typical Kerosene transaction starts from the discharge into marketer’s tanker on the shore.

“The marketer in turn sells the product in trucks; the big truck transfers into peddling trucks that are 10, 000 litres capacities.

“These peddling trucks move the product to road side tanks and from the road side tanks the product is sold to jerry can retailers and ultimately to bottle retailers.

“Most people in rural areas can only buy this product in bottles, which is the sixth handling point. No other white product goes through this type of value chain.

According to him, a combination of the limited supply after the leakages into other areas of utilisation and the long handling chain is responsible for the high retail price at the bottle.

Stanley observed that with the global climate change issues and the subsequent advocacy for the use of cleaner fuels, especially for domestic purposes it is important to encourage the substitution of Kerosene with Liquefied Petroleum Gas (LPG) in domestic cooking.

“This will also check the hazard of kerosene explosions and pollution in Nigerian households.

“He recalled that a World Bank study in 2005 showed that Nigeria should be consuming one million tons of LPG by 2010.

“According to him, in 2010, LPG consumption in Nigeria was 85,000 tons, by 2011, it advanced to 120,000 tons and by 2012, that figure stood at 180,000 tons.

“The good news is that Nigeria produces a lot of LPG from Bonny LNG Plant as well as Exxon-Mobil’s Bonny River Terminal.

The executive secretary noted that the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had already started the revolution of popularizing the use of LPG.

“Cylinders are being distributed in many parts of the country. A stakeholder’s workshop was held early this year under the aegis of the Ministry of Petroleum Resources to deepen the LPG market and this is already yielding positive results.”

Stanley lauded the current strategy of the NNPC to push kerosene supplies to grassroots consumers through the Independent Petroleum Marketers Association of Nigeria.

He, however, highlighted the need to engage the facilities of major marketers of petroleum products, who had demonstrated the highest market discipline on pricing issues.

The PPPRA chief said that Depot and Petroleum Products Marketers Association, who are at the very front in kerosene discharge and storage operations, should also be given serious consideration in the supply chain.

According to Stanley, as long as the price of Kerosene remains low, the product would find its way to alternative uses.

“This invariably limits what actually gets to ‘Mama Iyabo’s kitchen for cooking and lighting, thereby providing support for the high price seen in the market place, which is absolutely outside NNPC’s control,” he said.

By Roseline Okere, November 29, 2013