 "SpiceJet begins jet fuel import pilot, with RIL")
“ATF was pumped in the tank a few days ago. We bought fuel from another importer but eventually, we will import it ourself. It is not practical for us to create infrastructure. We only need the ATF. We hope direct import will save our costs by about 10 per cent,” said a SpiceJet executive.
He added the airline had tied up with RIL for technical support, including fuel testing and quality and safety issues. The airline hopes it would eventually import 15 per cent of its fuel requirement. Importing ATF would also help the airline save sales tax of 20-25 per cent of the fuel rate.
An RIL spokesperson declined to comment on the issue. SpiceJet did not reply to an email questionnaire.
Under the pilot project, the imported ATF is being stored and tested for quality at a private tank at the Kochi port. Subsequently, it is carried in trucks or tankers to a common fuel tank at the Kochi airport. The airline pays rent for the use of storage tanks.
State oil marketing companies import crude, process it locally and distribute it to airlines across the country. This requires infrastructure such as storage tanks and pipelines, as well as trucks and tankers. SpiceJet is not investing in infrastructure. Instead, it has tied up with a private company owning a storage tank at the Kochi port. Eighteen months ago, the government had allowed airlines to directly import fuel and save on value-added tax. However, progress on this front was slow; other airlines haven’t availed of the facility yet, owing to lack of infrastructure. Sources said IndiGo Airlines was in talks with Indian Oil Corporation to import ATF.
This month, ATF prices rose seven per cent to an all-time high of Rs 75,000/kl, owing to rising crude oil prices and the rupee’s depreciation. Fuel accounts for over 40% of airline's operating costs and domestic ATF prices are higher because of 20-25% value added tax imposed by key states. To ease the airlines' burden the government proposed that airlines import fuel directly which would enable them to save on VAT.
Given the tough economic environs, oil marketing companies are having a tough time with regard to sale of ATF. BPCL in its annual report says sales volume of ATF for public sector oil marketing companies in 2012-13 was lower than the volumes in the previous year by around 5.3%.
The aviation business ended the year with a total sales volume of 1172 TMT, which was 1.5% lower than the volumes achieved in 2011-12.
"You need two things in place for importing ATF. Tank at coastal area and pipeline connectivity from the coast to the airport. However, I do not see a reason why anyone should import ATF as Indian oil marketing companies are providing huge discounts of Rs 5000-6000 kilo litres of aviation companies,"said a senior official from one of the oil marketing companies, on the condition of anonymity.
He added that other than SpiceJet, no one has gone ahead with the plans of importing ATF, though many other expressed interest in importing ATF.
Directors of aviation business at oil marketing companies (OMCs) say given ATF is a very quality-sensitive product, it involves huge risk. Besides, lack of infrastructure for bringing in ATF cargo.
"Even if a company is able to bring the cargo to any of the coastal terminals, transferring it from there to the airport would be a logistics nightmare," he said, adding that risks in importing ATF are huge and there is no guarantee. Aviation companies are willing to sign a maximum two-year contract.
OMCs say if importing, airline companies will need to place an order for a few hundred thousand kilolitres of jet fuel at once, which should be for a period of three or six months. Payment for this, however, will have to made upfront.
Another impediment is the availability of tank farms which the OMCs have at various airports to store fuel.