Monday, December 26, 2011

India: Jolt to private airlines’ plan

New Delhi, Dec. 26: The government is unlikely to allow private carriers to import aviation turbine fuel (ATF).

Domestic airlines were hoping to persuade the government to allow them to import ATF, which will save them around Rs 2,500 crore.

“Such a proposal cannot be passed in a hurry. Besides, there are a lot of things the cabinet has to consider before allowing such a major policy change. Having only a policy will not help. There has to be infrastructure on ground before an approval can be granted,” a senior official in the civil aviation ministry said.

According to analysts, the airlines lack the infrastructure to store imported jet fuel. They also lack the technical knowledge of handling the volatile petroleum products market and may end up losing money.

If the government gives its consent to such a move, it will hit the revenues of state-run oil companies.

“Other sectors will also ask for some relief or other. If the government says no to them, it will be unjustified. It has to do a balancing act,” the official said.

However a final decision on the issue will be taken by the end of January.

At present, airlines buy ATF from Indian Oil Corporation as it is the only authorised public sector entity to import jet fuel for private carriers.

The directorate-general of foreign trade has in the last two months received letters from almost all the private carriers, including Kingfisher Airlines, asking for a green signal to allow ATF imports.

Fuel expenses constitute around half of the total operating cost of a domestic airline. It used to be 40 per cent of the cost barely a year ago.

The government will have to tweak the foreign trade policy to allow airlines to import fuel directly. According to officials in the civil aviation ministry, other ministries which have to give permission for such rule changes are in no mood to approve such a proposal.

To tackle the problem, the civil aviation ministry had requested the states on various occasions to rationalise sales tax on ATF. However, none of them have paid heed to the requests. States levy around 4-35 per cent as sales tax on ATF.

“ATF prices have increased 29 per cent between January and November this year. We are working on solutions to this problem but have been unsuccessful till now,” the official added.

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