Oil regulator to supervise aviation turbine fuel pricing
Ajit Singh has sought relief from oil minister on issues related to the high cost of aviation turbine fuel
New Delhi: The petroleum ministry has agreed to bring the pricing of jet fuel under the oil regulator, aviation minister Ajit Singh said, a move aimed at accountability and reducing costs for airlines.
Singh met oil minister M. Veerappa Moily on Tuesday seeking relief on issues related to the high cost of aviation turbine fuel (ATF), which accounts for about 50% of costs for domestic airlines.
The Petroleum and Natural Gas Regulatory Board (PNGRB), which regulates pricing of petroleum products in India, will also cover ATF, Singh cited Moily as having said.
It was not clear whether a group of ministers would need to look into the matter. There are also no timelines given on when this will be completed and the move could take days or weeks, but it is likely to help airlines reduce their oil bills, said a private airline executive who didn’t want to be named.
Currently, state-owned oil firms Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd fix jet fuel prices among themselves every fortnight.
“We internally call it the black box price," this airline executive said. “If it comes under PNGRB, whether they will increase 3% upon the prevailing international price or 20%, we will know it in a transparent way. That way we can question them."
Once PNGRB starts regulating jet fuel, airlines will also be able to plan better as “we know what the international price is", he said.
“This is a positive move," said Kapil Kaul, chief executive for aviation consulting firm CAPA, South Asia. “It will bring transparency in ATF pricing and result in lower ATF prices. Fuel costs are 50% plus of the airlines costs, and bringing in transparency and even accountability in finalizing pricing is critical. Our next goal should be to ensure ATF is given a ‘declared good’ status as airlines in India need a viable cost structure to sustain."
Singh said he discussed three other long-standing demands of the aviation ministry with the petroleum ministry. This included allowing firms besides the state-owned oil companies to provide fuel at the country’s key airports to foster competition and reduce fuel prices.
Singh also sought that ATF should be made a “declared good" so that a tax rate of 4% can be applied. Currently, taxes can be as high as 30%.
The issue of open access has been discussed and agreed upon at the highest levels of government, Singh said. While the oil ministry has said there are some issues related to safety and quality of aviation fuel, further discussions will take place among officials after Tuesday’s meeting.
Moily also raised Air India Ltd’s fuel dues of ₹ 4,200 crore. Singh said the oil ministry has been told that Air India has been granted funds by the government and it will pay the amount by end of the fiscal.
However, since Air India was paying for its daily fuel usage on a regular basis, it should get the same discounts granted to foreign airlines, Singh said.
An oil ministry official who did not want to be named said the moves will be resisted by the state-owned oil companies.
The government recently allowed international airlines to pick up stake in Indian carriers. Potential investors would like to see policy changes on fuel and infrastructure before considering stake acquisitions.
“Foreign airline capital shouldn’t be assumed to be ‘dumb money’ that will rush to the opportunity," said an international airline investor, who declined to be named. “You have to assume foreign airlines will be commercially rational and will consider any such investment in the context of India’s other issues: airline-related tax policies; jet fuel prices; shortfalls in airport infrastructure and air traffic control; corruption; arcane, complicated investment rules; labour regulations, etc."
Naresh Goyal-run Jet Airways (India) Ltd, which hasn’t made a profit in recent years, is in talks with Etihad Airways to sell a stake in itself.
In Tuesday’s trade, Jet Airways closed at ₹ 527.15 on the BSE, down 5.17%. SpiceJet Ltd ended at ₹ 43.35, down 0.12%, Kingfisher Airlines Ltd ended at ₹ 13.89, up 4.91%. The Sensex closed at 19,348.12 points, up 0.22%.
Utpal Bhaskar contributed to this story.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!