The Union Government’s move to decontrol the import of aviation turbine fuel (ATF) may not actually be of much help to airlines.
With the logistics involved in importing ATF, airlines may not be rejoicing in a hurry, say the oil companies Business Standard spoke to. “The government has not considered the infrastructure factors before announcing this ostensible benefit to airlines. ATF is a very quality-sensitive product. Whoever is importing ATF will have to keep this in mind,” said the director of aviation business at an oil marketing company (OMC).
OMCs say there is lack of infrastructure for bringing in ATF cargo. Assuming a company is able to bring the cargo to any of the coastal terminals, moving it from there to the airport would be a logistics nightmare.
An oil company approached by Jet Airways, GoAir and Kingfisher Airlines to import jet fuel for them says considering the risks are huge and there is no guarantee, it may not be willing. “If you guarantee that you will sign a long-term, three-five years of contract with me for importing the fuel, I am ready to put up the infrastructure. Else, it’s a money-losing proposition,” the director added.
OMCs think state governments will look at bringing in the sales tax in some other form, as they’ve has not been assured on how they’ll be compensated. Also, 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. So far, airline companies were also able to get jet fuel on credit from OMCs.
Another impediment is the availability of tank farms which the OMCs have at various airports to store fuel.
“A mid-sized tank farm with a capacity of 75,000 kl will cost around $20 million and around 18 months to build. I think if the airline companies had as much money to build tank farms, they would not be in the financial mess they are today,” said the director.
Besides, one would need ATF tankers in place. Else, players say, chemical tanks would be required to be cleaned for use. “Worldwide chemical tankers are in use. If one uses the same to transport ATF, in all probability the fuel will get contaminated. So, cleaning is necessary. If one consignment gets contaminated, the company will have to bear huge losses,” said the retail head of a private energy company.
Though the development is positive for the public sector OMCs, they are not enthused. “Airlines think this is a magic wand which will solve their problems. But they do not know they have been outsmarted by the government. We have explained the implications of this move to the airlines and they may get back to the government with a list of the pros and cons of this move,” added the director.
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