The Directorate General of Foreign Trade (DGFT), under the ministry of commerce and industry, is not keen on relaxing the norms to import aviation turbine fuel (ATF) by Kingfisher Airlines, before it examines the issue properly.
The Director General of foreign trade Anup K Pujari has denied receiving any formal request, even as the airlines’ boss Vijay Mallya earlier said he has approached the government to directly import ATF or jet fuel.
“The proposal has not yet reached me … DGFT has the power to relax the norms, provided certain stringent conditions are met as laid out in the Foreign Trade Policy (FTP), which categorically mentions there has to be a genuine damage in the event of which this relaxation can be given,” Pujari told Business Standard.
He said once they examine the issue, it would be taken up by the Policy Relaxation Committee (PRC) under his chairmanship, which will then give the go-ahead.
The FTP of 2009-2014, stipulates that import of ATF will be allowed through a particular state trading enterprise (STE) and in India it is only the Indian Oil Corporation (IOC) that can import jet fuel. Hence, if Kingfisher Airlines is allowed to import ATF directly, it would have to obtain STE status.
“I have to understand why a particular company wants to become a STE. Importing it directly would definitely save some costs, but the company has to prove it. After proper consultation and examination, we would be able to give any relaxation, else other companies might also request the same,” he said.
Kingfisher has suffered a loss of Rs 1,027 crore in 2010-11 and has a mounting debt of Rs 7,057 crore. A consortium of 13 banks now holds 23.4 per cent stake in the airline and has an exposure of over Rs 7,700 crore. Apparently, the state-owned oil marketing companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) have refused any further credit to the airline.
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“There was a time in the last 18 months when Kingfisher enjoyed over Rs 1,000 crore of unsecured credit by three oil marketing companies. We have repaid Indian Oil and Bharat Petroleum; we don’t owe them a single paise, as far as HPCL as concerned, of the over Rs 600 crore of unsecured credit, it is now down to Rs 40 crore,” Mallya said on Monday.
According to experts, importing ATF directly by any airline would not be a meaningful proposition.
“The airline will save on sales tax, if it imports directly, but the other expenditure in importing negates the benefit. You have to incur cost in exporting the oil and build infrastructure to store it. The cost of building infrastructure and transporting fuel is so much that it becomes a loss-making proposition for the airline. The airlines had mooted this plan some years back, but never implemented it because it was not cost effective,” said a Delhi-based analyst, who did not want to be quoted.
ATF constitutes 40-45 per cent of the operating cost of an airline. The average sales tax on ATF in India is 24 per cent, which is the second highest in the world, next only to Bangladesh where taxes are 27 per cent.
A proposal to allow import of ATF under open general licence (OGL) was mooted by the civil aviation ministry, after the country's airline industry suffered an estimated loss of Rs 10,000 crore in 2008-09. However, the proposal did not move further.