Private firms, including Reliance Industries Ltd, Essar Oil Ltd and Royal Dutch Shell Plc., will soon be able to sell jet fuel at metro airports despite not having their own supply depots as several such airports are planning to set up their own common fuel supplying facilities.
Such a common facility could help reduce investments in fuel supply logistics at these airports and could potentially cut the cost of jet fuel as well. It will also see the beginning of the end of a near-monopoly in sales of jet fuel at major airports by three state-owned Indian oil marketing companies.
Jet fuel accounts for about 40% of the operating cost of India’s domestic carriers, all of whom have collectively reported a loss of $500 million (Rs2,300 crore then) in 2006-07. The estimated annual fuel bill for the domestic airline industry is around $1.9 billion, based on rates prevailing in November. Fuel prices for domestic operations in India are 70-90% higher than international benchmarks.
“The new generation airports are planning a common facility for ATF storage and supply instead of separate infrastructure. All licensed companies, including private and public companies, can make use of this facility by giving a small fee,” said a Mumbai International Airport Pvt. Ltd (MIAL) executive, who didn’t want to be named.
“The ministry of civil aviation is also seriously considering setting up common facilities instead of separate structure in new airports as well as existing airports,” added a government official, who also didn’t want to be named.
Airports in Mumbai, Bangalore and Hyderabad are in the process of building fuel “farms” that can be used by all firms that are licensed to sell jet fuel. Delhi International Airport Ltd, a joint venture promoted by GMR Group-led consortium, is also exploring a similar infrastructure option.
Meanwhile, the proposed Navi Mumbai International Airport, the Kolkata and Chennai airports, as well as other new projects are also expected to have a common fuel supply facility.
Lack of infrastructure has kept private fuel suppliers to non-metro airports and they were also asked to set up their own separate infrastructure for supplying jet fuel, popularly known as aviation turbine fuel, or ATF. Reliance Industries Ltd (RIL) has the licence to store and sell fuel at 25 non-metro stations, where the number of airlines are comparatively less.
As a result, the three state-owned oil marketing companies—Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd—have had a near monopoly at all leading airports, each with massive, separate supply facilities.
MIAL, owned by a GVK-led consortium, is currently modernizing Mumbai airport and has given potential builders of a fuel farm until 31 December to seek the project.
Airlines buy around 3,500-4,500kl of ATF every day at the airport. The demand in estimated to grow at 4-5% every year and reach about 8,000kl per day by 2014, according to MIAL.
Gurcharan Bhatura, secretary general of Foundation for Aviation and Sustainable Tourism, or FAST, a body to promote aviation, predicted common facilities will lower prices. “With the intense competition, private and public players will certainly pass on the benefit to airlines,” he said.
“Public sector oil firms are currently offering nominal discounts to airlines. With Reliance and Essar coming in through a common user facility, the quantum of discounts will go up, based on the volumes,” predicts M. Thiagarajan, managing director of Paramount Airways, a Chennai-based private airline.
Adds Siddhanta Sharma, executive?chairman?of?New?Delhi-based low-fare carrier SpiceJet: “There could be lot of savings on the count of infrastructure cost. If the private players are willing to pass on to airlines, it is a welcome step.”
RIL and Essar have already started talks with airports to supply ATF through such common facilities, though executives at both companies declined to comment.
Hyderabad International Airport Ltd, a company that is also promoted by GMR Group to build a greenfield international airport in Shamshabad, near Hyderabad, has already awarded its fuel farm operations contract to RIL.
As per the contract, the airport will have a farm, consisting of three storage tanks with an initial capacity of 13,500kl ATF and hydrant, within the new airport premises. RIL will operate the farm that can be used by any supplier.
Bangalore International Airport Ltd, a company promoted by Siemens Project Ventures GmbH and Larsen and Toubro Ltd to build the new Bangalore airport, has selected a consortium led by Indian Oil for setting up such a supply facility.