No independent regulator for ATF price: OMCs

Four of the country’s largest airlines have called for an independent regulator to ensure a transparent

pricing mechanism for aviation turbine fuel (ATF). But, this has been stalled by state-owned oil

marketing companies (OMCs). According to sources in the civil aviation ministry, there were attempts to

bring the pricing of ATF under the regulation of the Petroleum and Natural Gas Regulatory Board

(PNGRB).

“A number of meetings were held between the public-sector OMCs and the petroleum and aviation

ministry officials but nothing was finalised. There is opposition from OMCs regarding this,” said a

ministry official.

PNGRB has not been mandated by the government to regulate prices of petroleum products. ATF prices

are fixed by Indian Oil, Hindustan Petroleum (HPCL) and Bharat Petroleum directly. The ATF price was

increased on March 1 after two consecutive price cuts. ATF price touched Rs 3,711 for a kilolitre in

September 2012 but came down to Rs 39,301 on March 1. The steep fall in crude oil prices might have

played a big role in the turnaround story of the Indian aviation sector, but airlines are still not convinced,

saying they have not received the full benefit in terms of jet fuel pricing. This, according to the airlines, is

due to the public-sector OMCs, which enjoy monopoly in the market and are not keen to lower ATF

prices.

“If the government wants to make flying affordable, it should first make the pricing competitive,” said an

airline executive. An SMS sent to Nishi Vasudeva, CMD of HPCL, remained unanswered. Rahul Bhatia,

Ajay Singh, Naresh Goyal and Nusli Wadia – the promoters of IndiGo, SpiceJet, Jet Airways and GoAir –

under the banner of the lobby group Federation of Indian Airlines in a letter to the top executives of

OMCs complained of the same and asked for sharing the pricing mechanism of jet fuel with the airlines.

In the letter, the association termed the pricing mechanism ambiguous. “Agree to a mechanism where

all charges and the basis for such charges should be shared with airlines in a fully collaborative and

transparent manner at the time of price fixation each month,” said the letter.

Another airline executive said OMCs fix the price, taking into account variable costs such as ocean

freight, customs duty, bank charges, insurance, etc. “The crude is only imported and ATF is

manufactured in Indian refineries. So levying such costs is totally unjustified.”

According to an estimate by consultancy firm CAPA, ATF price is subject to multiplicity of taxes in India

and, as a result, it consists of almost 45 per cent of the operating cost of an Indian airline compared to

32.3 per cent of a global airline.

NGS INDIA