OMCs aiding airlines in ATF import unreasonable: BPCL

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OMCs aiding airlines in ATF import unreasonable: BPCL

Although it might spell some good news for the airline industry, it is definitely adding pressure to the OMCs as the EGoM approved importing of ATF.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about BPCL See previous management interviews See what other Experts & Brokerages are saying about BPCL

Although it might spell some good news for the airline industry, the government's decision to allow airliners to directly import jet fuel will hurt margins of oil marketing companies. Currently, aviation turbine fuel is the only petroleum product that is earnings profits for state-owned oil firms. The rest like petrol, diesel and kerosene are sold at subsidised rates.

RK Singh, CMD of BPCL thinks that OMCs aiding airlines in ATF import is unreasonable . In an interview to CNBC-TV18, Singh said that it is in no position to aid airlines in importing ATF. He also added that the company has not received any diktat from the government to help aviation companies.

Expressing displeasure on the government's decision, Singh said that airlines will have to import ATF in huge quantities which is not viable. Besides storage facility problems, saving via ATF imports will be more than spent on logistic, he pointed out.

Also he does not think it is a good proposition for RIL to import ATF as it may face distribution problems.

RIL is in talks with India's major airlines to provide jet fuel infrastructure and transport services. It is negotiating with airlines including Kingfisher Airlines , Jet Airways and Air India to provide storage facilities at ports, transport services to airports and fuelling infrastructure around the aircraft.

Below is the edited transcript of Singh's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying videos.

Q: Do you have any kind of spare capacity available? Are you in a position to extend the kind of logistics support and storage support that aviation companies might soon request you for?

A: First of all, I don't agree with the claim that by importing ATF they will save money, Our product is based on import territory in any case. What they are going to save is the sales tax which varies from 15-28% across the country. They will save sales, but they will get something like 30 days credit. But, today they are all enjoying credit more than 30 days from us.

Secondly, if they have to import, they have to import the parcel size of minimum 10,000-15,000 tonne, otherwise there will be no freight economics. If they do so, they will carry inventory for a long time, whereas from us they get it on just in time basis. There will also be additional costs in terms of terminalling, logistics, transportation and transporting all the way from west coast or east coast to rest of the country.  In my opinion they will incur much more than what they are paying today.

Q: The airlines seem to believe that even after taking care of all these costs they would actually substantially save money because of the sales tax. You are in a better position to judge these logistics costs. Can you just break it up for us giving an example so that we can understand your point better?

A: At the most they can import at ports like Mumbai, Kandla in the west coast, Kochi and Chennai and Haldia in the east coast. Then they will have an arrangement for terminalling and pay for terminalling charge. There will be transportation charge, pipeline charge, port charge and other costs associated with this kind of import.

Even if somebody offers them terminalling facility, tanker and storage facility, that is not the end of it because after that they will have to transport it either through pipeline or transport system. For example, I don't think trucking is permitted at Mumbai airport; same is the case with other major airports, whereas we transport our fuel through pipeline.

So, they will have to depend heavily on the oil companies for the infrastructure support. What kind of terms and conditions will be entered into remains to be seen. So after paying for all this they will simply save on the sales tax, but due to the costs associated with logistics and import, saving will be more than utilized.

Q: Reliance has indicated that some of the aviation companies have approached them to handle ATF on their behalf and talks are now at a preliminary stage. How viable and alternative is that to your mind?

A: Reliance will import where? They can import only in Hazira or Jamnagar and what after that? The airports are located all over the country and so are the refineries, so supplying fuel on just in time basis through our own arrangement, terminalling facilities will be much more convenient. I have a big question mark on the doability of the entire proposal.