India’s regulatory board to supervise aviation turbine fuel pricing

At a meeting held between India’s Oil Minister M. Veerappa Moily and Aviation Minister Ajit Singh, an agreement was reached to put the function of setting the price of aviation turbine fuel (ATF) under the Petroleum and Natural Gas Regulatory Board (PNGRB), a move aimed at accountability and reducing costs for airlines. ATF accounts for more than 50% of the costs for domestic airlines. No timetable was given on when the agreement would take effect, and whether the agreement would need action from other ministries.
Under present rules, the state-owned oil firms Indian Oil Corp. Ltd. (IOC), Hindustan Petroleum Corp. Ltd (HPCL) and Bharat Petroleum Corp. Ltd. (BPCL), are the ones that fix jet fuel prices among themselves every fortnight. However, airline industry players believe that price-fixing under PNGRB would result in a more transparent, rationalized pricing structure, which would result in lower airline costs.
Among other matters discussed at the ministers’ meeting were the long-standing demands of the aviation industry:
• To allow private firms besides the state-owned oil companies to provide fuel at India’s key airports in order to foster competition and thus reduce fuel cost;
• That ATF be made a “declared good” to entitle it to a 4% tax rate, against the current tax that reaches as high as 30%.
Minister Moily brought up Air India’s fuel dues to the government in the amount of Rs4,200 crore (US$766.9 billion). Singh said the oil ministry has been told that Air India will pay the amount by the end of the fiscal year. However, since Air India was paying for its daily fuel usage on a regular basis, it should also get the same discounts as those given to foreign airlines, Singh asserted.
The issue of open access, which has been discussed and agreed upon at the highest government levels, will need further discussions as they relate to safety and quality of aviation fuel.
The government recently allowed international airlines to buy stakes in Indian carriers, but potential investors would like to see policy changes on fuel and infrastructure before considering stake acquisitions. (December 5, 2012)