Mumbai: The Mukesh Ambani-controlled Reliance Industries Ltd, or RIL, has managed to get a piece of the country’s largest jet fuel tender, making it the first private oil company that will supply fuel to the state-owned National Aviation Co. of India Ltd, or Nacil, which was formed by merging Air India and Indian.
RIL won the contract to sell jet fuel (popularly know as aviation turbine fuel or ATF) to Nacil at the Madurai, Ranchi and Udaipur airports.
The rest of Nacil’s contracts, for buying 1.4 million kilo litres of jet fuel for its planes in other airports in the country, have been awarded to state-owned firms, Indian Oil Corp., Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd.
State-owned oil marketing companies have thus far enjoyed a monopoly in the business, fixing jet fuel price based on a mutually agreed formula that is about 70% higher within the country than it is in most airports outside India.
But, with the entry of RIL, Nacil received jet fuel quotes at “competitive rates”, said a senior executive at the aviation firm. The executive did not wish to be identified.
Entry point: Reliance Industries won the contract to supply jet fuel to state-owned Nacil, which operates Air India, at the Madurai, Ranchi and Udaipur airports. (Ramesh Pathania / Mint)
“It is a good beginning and marks the end of the public sector monopoly,” said Kapil Kaul, chief executive for Indian subcontinent and West Asia, Centre for Asia Pacific Aviation, an aviation consulting agency. “The entry of Reliance Industries may not have an immediate impact but this will eventually bring in competition that will lead to a reduction in jet fuel prices.”
“With a private sector company supplying fuel, state-owned companies will be forced to cut down their marketing charges,” he said.
Nacil, which had a fuel bill of Rs7,000 crore in 2007-08, purchases 60% of its fuel requirement from India and the rest from abroad.
A spokesperson for RIL confirmed the development but declined to divulge further details. Sales at the Madurai, Ranchi and Udaipur airports constitute only 5% of Nacil’s total fuel purchase, but Reliance Industries is also authorised to sell ATF in 11 other airports including Amritsar, Bangalore and Hyderabad.
Fuel contributes to 40% of the operating cost of the airlines. Erstwhile Air India, before merging into Nacil last year, had decided to hedge some of its fuel requirement in 2004-05, but discontinued this after oil prices increased.
Jet fuel rates for domestic operations in India are priced 70-90% higher than international benchmarks. ATF price in Mumbai was Rs41,105 per kilo litre as against the international price of Rs23,064 as in October 2007.
The Federation of Indian Airlines, or FIA, a lobbying body for domestic carriers, said in a letter to the government that rationalizing jet fuel prices for domestic operations to international benchmarks would result in estimated annual savings of $624 million for the airline industry.
Global energy company Royal Dutch Shell Plc had formed a joint venture company with Mangalore Refinery and Petrochemicals Ltd, a subsidiary of Oil and Natural Gas Corp. Ltd, to market and supply aviation fuel at Bangalore and Hyderabad airports initially.
Mumbai-based business conglomerate Essar Group is also planning to sell jet fuel to airlines shortly and is looking at metro airports to start with.
The government decides on the prices of most petroleum products sold by the oil marketing firms but ATF isn’t included in this.