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GoM Allows Airlines to Directly Import Jet Fuel; Costs Could Cut By 25%

  • A group of ministers led by Finance Minister Pranab Mukherjee on Tuesday allowed airlines to directly import jet fuel, throwing a potential lifeline to the struggling sector as the move could cut costs by 25%.But the practical utility of the move is far from clear as airlines would have to set up infrastructure at ports for the imported fuel and arrange for transportation to airports - tasks that may stretch the finances of carriers, whose combined losses could amount to $2.5-3 billion ( 12,500-15,000 crore).The ministers also allowed debt-laden Air India to raise 7,400 crore by issuing government-guaranteed bonds.
  • Civil Aviation Minister Ajit Singh said airlines "will be allowed to import fuel directly for their use. This, and the Air India restructuring, have to go to the Cabinet (for final clearance)".Direct imports will allow airlines to save on state taxes that range from 4% to 28%. In India, aviation turbine fuel (ATF) accounts for about 40% of an airline's total operating cost.Only a few airports, notably Delhi, Hyderabad and Bangalore, allow refuelling infrastructure to be shared on an open-access basis, said Kapil Kaul, CEO of the Centre for Asia Pacific Aviation.
  • Oil companies such as IOC, HPCL and BPCL have a monopoly on refuelling infrastructure.The refuelling infrastructure at crucial airports such as Mumbai, Kolkata and Chennai is owned by oil companies such as IOC, HPCL and BPCL, and airlines would need to enter into agreements with them.A CEO of a low-cost airline, who spoke on condition of anonymity, said he would aim to do just that.State-run oil marketing companies (OMCs) enjoy near-monopoly in the supply business, so they are not taking very kindly to this policy change.
  • "OMCs are present in about 100 airports across the country and have spent 60-100 crore on establishing ATF infrastructure and training manpower.These investments will be impacted," said a senior official from one of the companies.Air India, Jet Airways and Kingfisher Airlines have run up unpaid bills of 4,000 crore to OMCs, which have sold 5 million tonnes of ATF during April-December 2011.
  • India produces around 10 million tonnes of ATF every year, of which about 45% is exported. "It defies logic that airlines may need to import the fuel in an ATF-surplus country, which clearly shows that our taxation policies need to be more visionary and business-oriented," said Amber Dubey, director (aviation) at global consultancy firm KPMG.

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