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India's GoM approves direct import of jet fuel

8-Feb-2012 9:52 AM

India's Group of Ministers (GoM), headed by Finance Minister Pranab Mukherjee, cleared a proposal to allow Indian carriers to import fuel directly. “The final clearance will come from the Cabinet,” Civil Aviation Minister Ajit Singh said after the GoM meeting. Allowing any airline to import oil directly will also require the government to change the Foreign Trade Policy (FTP). According to local reports from PTI, IANS, CNBC-TV18, The Hindu Business Line, The Hindu, Hindustan Times, Business Standard, Economic Times, DHNS and TravelBizMonitor, details include:

  • Cost savings: The ability to import fuel directly could save airlines at least INR25 billion (USD508 million) p/a, equating to around 25% of airlines' total ATF expenses. ATF constitutes around 40-50% of operating costs at the nation's airlines;
  • Current process: Currently, ATF is purchased by airlines from oil companies, with the purchase involving a states sales tax, which averages around 24% in India. This makes it the world's second highest jet fuel tax in the world, second only to Bangladesh at 27%;
  • Process at the airports: At present, only a few airports, notably Delhi, Hyderabad and Bangalore, allow refuelling infrastructure to be shared on an open-access basis. Oil companies such as Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp have a monopoly on refuelling infrastructure. The refuelling infrastructure at airports such as Mumbai, Kolkata and Chennai is owned by oil companies and airlines would need to enter into agreements with these companies to enable them to import jet fuel directly. Reacting to the decision, Bharat Petroleum Corporation chairman S Radhakrishnan said: “Infrastructure and transporting is not going to be easy… good luck to them. Inventory, carrying cost, infrastructure, it’s not going to be an easy option as it is looking to be”. This issue of infrastructure, storage and transportation issue is key given the financial expenditure which would be involved and given the financial volatility in the aviation sector at present;
  • Kingfisher Airlines: Kingfisher Airlines had previously applied to the Director General of Foreign Trade for permission to directly import ATF even before the GoM took up the issue;
  • Taxes: Reports indicated that state governments may levy an “entry tax” as they stand to lose revenue as ATF imported directly by the airlines will attract no sales tax;
  • Impact on shares: Shares of Jet Airways, Kingfisher Airlines and SpiceJet rallied in the stock market following the approval.  Shares of Kingfisher Airlines surged to its maximum daily limit of 20% while SpiceJet and Jet Airways rose 19% and 16.8% respectively.