India may soon have a new mechanism to price air turbine fuel (ATF) for domestic airlines which will bring more parity between global crude price and ATF price in India, reported the Economic Times.
This may take down the cost of ATF by at least 15 percent and will be a big boost for the ailing Indian carriers for whom ATF consists of 40 percent of total cost of operations, said airline executives to ET.
ATF prices have seen more than 50 percent hike since January.
Sources mentioned that state-owned oil advertising and marketing corporations (OMC) are prone to shift to a pricing mechanism based mostly on international benchmark index just like the MOPAG (Mean of Platts Arab Gulf).
This can even deliver extra reliability and predictability in gas pricing and permit them the cushion of hedging and management their output value, said the airline executives. "OMCs are already promoting ATF to worldwide airlines based mostly on MOPAG costs," the report said.
Executives of OMCs mentioned to ET that they’re working on a twin pricing system the place the worth of ATF in metro and distant places could also be totally different and a dealing with cost could also be added for airports in distant places to cowl transportation value.
“Domestic airlines are asking OMCs to use the same formula that is used to price ATF for international airlines. One has to understand that international airlines operate out of limited airports in India whereas domestic airlines operate from over 200 airports. We will have to factor in transport costs for airports which are away from refineries. So OMCs may deliberate on a dual pricing system based on airport location,” ET quoted a senior OMC official.
Following the dismantling of the ‘Administered Price Mechanism’ (APM) in April 2001, at the moment ATF value in India and is mounted based mostly on the International Import Parity Prices. “This doesn’t capture the true price of producing of producing ATF in India and is lop sided against that of airlines as there is no transparency in pricing. Price for ATF sees a steep hike when brent crude price increases but when the crude price falls, the same is not passed in similar proportion to airlines,” ET reported, citing official sources.
The prices ATF were slashed by 12 percent to Rs 1.21 lakh per kilolitre in Delhi on August 1, as per a notification from the Indian Oil Corporation (IOCL).
ATF prices for domestic airlines in metros now stand at Rs 121,915.57 in Delhi, Rs 128,425.21 in Kolkata; Rs 120,875.86 in Mumbai; and Rs 126,516.29 in Chennai.
A delegation led by civil aviation minister Jyotiraditya Scindia and prime airline executives this month advised the petroleum ministry that the present pricing mechanism is unfavourable to them and making operations unviable.
Earlier this year, Civil Aviation Minister Jyotiraditya Scindia said the proposal to bring aviation turbine fuel (ATF) under the ambit of Goods and Services Tax (GST) was under consideration.With constant persuasion, the picture has completely reversed now with 15 more states including states like UP and Karnataka with large airports like Lucknow & Bengaluru reducing VAT to 1-4 percent,” a senior civil aviation ministry official told ET.