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Patel wants end to PSU oil cos' ATF monopoly

Economic Times; 29 October 2007

NEW DELHI: The aviation turbine fuel (ATF) market, till now the monopoly of public sector oil companies, could soon witness competition as the ministry of civil aviation has urged the Airports Authority of India (AAI) to develop common fuel infrastructure at airports and enable private oil retailers, such as Reliance and Essar, to enter the fray. The ministry has said throughput charge should not be the basis for awarding contracts to oil companies for supplying the fuel.

The move is intended to stop the trend of public sector oil companies, such as IOC, quoting a higher throughput charge to bag the contract and then passing on the extra burden to airlines. AAI awards fuel supply contracts to companies that promise the maximum throughput charge to it.

Airlines feel competition in ATF supply would lead to lower prices. They have been pushing for oil supply infrastructure to be converted into a common carrier so more players can enter this business. The civil aviation ministry is also supportive of this move as it could lead to some moderation in ATF prices in India, which are among the highest in the world.

"In the recent past, PSU oil marketing companies which have a monopoly in supplying ATF at almost all the major airports have been quoting maximum throughput charges to win contracts. While these companies pass on the throughput to airlines, the move has an adverse impact on airlines as well as passengers. This is not a healthy trend for the domestic aviation industry," an official in the ministry of civil aviation said.

"We have asked AAI to help us rationalise the fuel price in the country and bring it to international levels," he added.

Earlier this month, oil regulator Petroleum and Natural Gas Regulatory Board (PNGRB) had written to the civil aviation ministry for freeing of aviation fuelling facilities at airports from the public sector stranglehold by allowing use of existing infrastructure by all players, including private companies.

"Taking a cue from the awards for new airports by AAI at Hyderabad and Bangalore for setting up aviation fuelling infrastructure under common carrier or open access principles, AAI should also be simultaneously directed to pursue extension of similar principles to other airports," PNGRB chairman L Mansingh said in a letter.

Fuelling infrastructure at most airports in the country is in the hands of public sector oil companies. At these airports, even if a private oil marketing company wins the contract it can't supply fuel as it won't find any space. Lack of competition in marketing the jet fuel leads to the price of ATF escalating.

A Federation of Indian Airlines (FIA) estimate indicates that a reduction in ATF price by 60% (to bring it closer to international benchmarks) could lower airlines' operational losses by 25%. It believes that rationalisation of ATF price and bringing it to international levels may ensure annual savings of $624 million for the airline industry. Fuel contributes to about 40% of the operating cost of airlines. Compared to international benchmarks, ATF is priced about 65% higher in the country.