Airlines may get to import jet fuel directly, bypassing IOC

23 Dec 2011 Evaluate

To help thefinancially-pressed aviation sector, the government may allow airlines toimport their fuel directly. The move would help airlines save at least Rs 2,500crore annually, a fourth of their total aviation turbine fuel (ATF) bill of Rs10,000 crore. Since a decision on allowing airlines to import ATFinvolves a policy change, any decision on this will have to be referred to theCabinet for approval.

Core group of secretaries reaches consensus on allowing airlines to import fuel directly

Final approval will come from the Cabinet

Allowing direct import is estimated to save Rs 2,500 crore of airlines annually

Oil cost for an airline operating in India constitutes 50% of the total operating cost

The average sales tax on ATF in India is at 24%, second only to Bangladesh at 27%

Kingfisher had asked permission from DGFT for direct import of fuel

As of now, only Indian Oil Corporation can import jet fuel

A consensus on this issue emerged in a meeting held a fewdays earlier by a group of secretaries of relevant ministries, formed to lookat the issues of concern for the sector. It included representatives from theministries of civil aviation, commerce, petroleum and finance, beside thedirectorate-general of foreign trade (DGFT). It was felt that the airlinesshould be allowed to import fuel directly, as that will lead to huge savingsfor them. Currently airlines buy ATF from oil companies. It is imported ontheir behalf. That is why they have to pay hefty states sales tax. By importingdirectly for their own consumption, the airlines would not have to pay thelevy. The average sales tax on ATF in India is the second highest in the world,lower than only Bangladesh’s 27 per cent. The average tax in India is 24 percent.

The exemption proposed is for the entire sector.Kingfisher Airlines had earlier applied to the DGFT (under the commerceministry) for allowing it to import fuel directly. It had suffered a loss of Rs1,027 crore in 2010-11 and has debt of Rs 7,057 crore. A consortium of 13 banksnow holds 23.4 per cent stake in the airline. Fuel cost for an airline operating in India is around half its totaloperating cost. It used to be 40 per cent of the cost barely a year before. Allowingany airline to import oil directly will require the government to change theForeign Trade Policy (FTP). DGFT has the power to relax the norms, providedcertain stringent conditions are met as laid out in the FTP, whichcategorically mentions there has to be a genuine damage in the event of whichthis relaxation can be given. The FTP of 2009-2014 stipulates that import ofATF will be allowed through a particular state trading enterprise, and inIndia, it is only the Indian Oil Corporation that can import jet fuel.

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