Secretaries panel endorses proposal to save Rs 2,500 cr yearly on airlines’ fuel bill, will need Cabinet nod.
To help the financially-pressed aviation sector, the government may allow airlines to import their fuel directly. The move would help airlines save at least Rs 2,500 crore annually, a fourth of their total aviation turbine fuel (ATF) bill of Rs 10,000 crore.
Since a decision on allowing airlines to import ATF involves a policy change, any decision on this will have to be referred to the Cabinet for approval.
| NOW WHAT? |
| * 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 few days earlier by a group of secretaries of relevant ministries, formed to look at the issues of concern for the sector. It included representatives from the ministries of civil aviation, commerce, petroleum and finance, beside the directorate-general of foreign trade (DGFT).
“It was felt that the airlines should be allowed to import fuel directly, as that will lead to huge savings for them. Our ministry has supported this demand and the good news for the airline may come very soon, maybe in two weeks,” said a senior civil aviation ministry official, who did not want to be identified.
Currently airlines buy ATF from oil companies. It is imported on their behalf. That is why they have to pay hefty states sales tax. By importing directly for their own consumption, the airlines would not have to pay the levy. 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 per cent.
“If the state governments do not have a long-term view and continue to tax ATF sales, the industry’s financial position will get worse,” said the official.
The exemption proposed is for the entire sector. Kingfisher Airlines had earlier applied to the DGFT (under the commerce ministry) for allowing it to import fuel directly. It had suffered a loss of Rs 1,027 crore in 2010-11 and has debt of Rs 7,057 crore. A consortium of 13 banks now holds 23.4 per cent stake in the airline.
Fuel cost for an airline operating in India is around half its total operating cost. It used to be 40 per cent of the cost barely a year before.
Allowing any airline to import oil directly will require the government to change the Foreign Trade Policy (FTP).
DGFT has the power to relax the norms, provided certain stringent conditions are met as laid out in the FTP, which categorically mentions there has to be a genuine damage in the event of which this relaxation can be given The FTP of 2009-2014 stipulates that import of ATF will be allowed through a particular state trading enterprise, and in India, it is only the Indian Oil Corporation that can import jet fuel.
