Direct ATF import by airlines still a distant dream

Many airlines lack infrastructure, funds needed to import and store the fuel PSU oil companies not keen to share airport infrastructure

The government’s decision to allow cash-strapped domestic carriers to import cheaper aviation turbine fuel (ATF) directly has skidded on the runaway.

While many airlines are keen on this issue, these do not have the expensive infrastructure needed to import and store the fuel. Also, public-sector oil companies that control the port and airport infrastructure for ATF (tankers, pipelines for transportation, refuelling facility at airports) are not keen to share these with airlines. This is because selling ATF to domestic carriers is a profitable business.

The relaxation was aimed at providing respite to domestic carriers which had to mandatorily buy ATF from public-sector oil companies and pay substantial sales tax — averaging 22-24 per cent — making the fuel one of the most expensive in the world. By importing it directly for its own consumption, airlines can save up to Rs 13,000 on every tonne of ATF at current prices, or Rs 2,500 crore a year.

While aviation minister Ajit Singh says he expects public-sector oil companies to help domestic carriers, executives of Hindustan Petroleum Corporation and Indian Oil Corporation say they are not talking to anyone, and that the onus lies with carriers. “We are not discussing with any airline. The government has allowed them to import ATF directly, they can do what they want,” said a senior HPCL official.

Airlines say the key question is who would control infrastructure. A senior executive at Spicejet, which is considering importing ATF, said, “The real problem is infrastructure owned by oil companies. The companies may not be forthcoming in sharing it.”

A senior executive at one of the country’s leading low-cost carriers, said, “No one can import ATF directly. Those who are saying so are just diverting attention from their serious financial positions.”

The reason is obvious: oil companies say these make good margins from selling ATF. Why then, should these lose this business, help airlines import directly, and use their infrastructure? Oil company executives say the margins could be as much as Rs 3,000 - Rs 4,000 for a tonne of ATF.

Also, India is an ATF-surplus country. It consumes only 65 per cent of the ATF processed in the country. Oil companies import crude process it into ATF. Kapil Kaul, managing director of Centre for Aviation Pacific Aviation, says, “Even after extending large credit facilities, selling ATF is a profitable business for oil companies. Why should these lose the business and help airlines import directly?”

Airlines say airlines are facing various constraints. For instance, except for Hyderabad, Bangalore and Delhi, which have common access facilities for refuelling, hydrant infrastructure and storage in most large airports is controlled by public sector oil companies.

Private oil companies can be roped in to compete with public sector oil companies. However, Essar Oil, for instance, does not have any ATF tanking facility in any port, while Reliance Industries has some in a few ports. Without this facility, it would be impossible to import ATF. Also, private oil companies may not have pipelines to transport oil to airports directly or train loading systems in ports to transport it by rail.

Many say financially-crippled airlines, which are surviving by paying for oil on credit for many months and are defaulting on payments in cash-and-carry, would not be able to make upfront cash payments for the imported oil. A senior executive of a private oil company said, “A minimum ship with ATF fuel has to be around 30,000 to 40,000 tonnes, which means airlines have to have letters of credit of Rs 200 crore. Even if it shares this with another airline, the number is half. How many airlines have the finances to do so? These would not get the credit these get from public-sector oil companies now.”

Kaul says airlines would have to pay much more for ATF, as these don’t have the bargaining power to buy in bulk like oil companies.

Some state governments, like the Bihar government, are already talking of imposing an entry tax to compensate for the loss of sales tax revenue. If this is carried out, the differential in importing directly would be done away with.