Cheaper jet fuel for international flights likely

FOREIGN TRADE POLICY/ SECTOR-WISE ANALYSIS AND ASSESSMENT

The government has decided to allow international flights of both Indian and overseas airlines to buy aviation turbine fuel (ATF) in India at rates comparable to international prices.

The change in the Foreign Trade Policy means that jet fuel sold in India to international flights will be treated as physical exports and not attract most of the domestic tariffs.

Until now, such sales could only get central excise refund; with the change, the customs component will also be refunded as such sales will be treated as exports.

Since such exports will only be allowed against issue to advance licence, they are not expected to be counted as a revenue loss; six oil marketing companies are already allowed to buy fuel domestically under the advanced licence scheme.

Only state-run companies can sell jet fuel at Indian airports. The government is of the view that increase in ATF sale volumes, as a result of this move, will offset the government's revenue losses due to cuts in tariffs. Oil companies, while admitting that this could benefit them in terms of duty reduction, do not see ATF sales going up.

"We will be benefited to the extent of duty exemptions that we will get on the crude oil that goes into production of aviation turbine fuel. We do not see much increase in volumes, as the amount of off-take is not driven by price but individual needs of the airlines," an IOC spokesperson said.

A Reliance Industries' spokesperson said the move would not benefit the company as it exports most of its production of jet fuel directly.

Till now, the high duty structure on jet fuel in the domestic market made fuelling in India an unviable proposition. The duty structure made Indian ATF prices about 20 to 25 per cent costlier than the international rates. With this move, the government hopes that India would emerge as a fuelling and supplies hub for many international carriers.

"Currently, most airlines replenish supplies or refuel at Thailand, Malaysia or Singapore. Since these supplies were not treated as exports in India and the suppliers could not obtain the duty neutralisation benefits available to other export products, the store supplies from India were not competitive enough," Commerce Minister Kamal Nath said while announcing the Foreign Trade Policy 2006-07.

In addition, supplies to international flights such as food and beverages will be treated as exports.