Earlier this year, in March, the country’s leading private sector airlines — IndiGo, Jet Airways, SpiceJet and GoAir — accused the public sector oil marketing companies — Indian Oil, HPCL and BPCL — of profiteering on aviation turbine fuel (ATF). These oil companies supply about 95 per cent of the ATF across India’s airports and reset the fuel’s price on the first day of each month.
Urging disclosure of the “ambiguous” and opaque price discovery mechanism for ATF, the airlines alleged that the benefit of the sharp fall in crude oil prices since 2014 had not been passed on. The 12 per cent hike in ATF price in March was being paid under protest, the airlines said. Indian Oil, the largest ATF supplier, was quick to refute the allegations. There was no monopolistic situation in ATF supply and pricing, the oil major said, adding that airlines were free to import the product, and that it is inappropriate to compare ATF price in an oil importing country such as India with that in oil exporters. ATF price had reduced sharply since 2014, Indian Oil said, asking for good measure whether airfares had reduced commensurately.
While the argument continues, the truth, as always, seems to lie somewhere in the middle. ATF prices have evidently come down over the past two years. At about ₹47,200 a kilolitre in Delhi, the fuel is today about 32 per cent cheaper than it was in end June 2014 (about ₹69,800). But the drop is much lower than the 60 per cent dip in the cost of the Indian crude oil basket over the same period — from $109 to $43.5 a barrel. Three factors account for this — the pricing mechanism, taxes and exchange rates.
28/08/16 Anand Kalyanaraman/Business Line
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Urging disclosure of the “ambiguous” and opaque price discovery mechanism for ATF, the airlines alleged that the benefit of the sharp fall in crude oil prices since 2014 had not been passed on. The 12 per cent hike in ATF price in March was being paid under protest, the airlines said. Indian Oil, the largest ATF supplier, was quick to refute the allegations. There was no monopolistic situation in ATF supply and pricing, the oil major said, adding that airlines were free to import the product, and that it is inappropriate to compare ATF price in an oil importing country such as India with that in oil exporters. ATF price had reduced sharply since 2014, Indian Oil said, asking for good measure whether airfares had reduced commensurately.
While the argument continues, the truth, as always, seems to lie somewhere in the middle. ATF prices have evidently come down over the past two years. At about ₹47,200 a kilolitre in Delhi, the fuel is today about 32 per cent cheaper than it was in end June 2014 (about ₹69,800). But the drop is much lower than the 60 per cent dip in the cost of the Indian crude oil basket over the same period — from $109 to $43.5 a barrel. Three factors account for this — the pricing mechanism, taxes and exchange rates.
28/08/16 Anand Kalyanaraman/Business Line
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