Import of jet fuel fraught with risks

Import of jet fuel fraught with risks

The decision of a Group of Ministers (GoM) on Tuesday allowing airlines to directly import jet fuel is fraught with several problems – both logistical and financial – for the loss-making carriers.

Private carriers, led by Kingfisher Airlines, may have lobbied and succeeded in getting the GoM’s green signal for import – it still has to be approved by Union cabinet – but they have to sort out several logistical issues before the actual import happens (at present, jet fuel is purchased by airlines from oil companies, and this involves states’ sales tax, which varies between four and 25 per  cent in different states.)

First is the issue of storage – both at sea ports and at airports. Either the airlines should have storage of their own or they should take space on rent which means they have to shell out money. Secondly, at present, import facility is available only at Mumbai and Kandla ports in the West coast and Kochi, Chennai and Haldia in East.

While importing fuel, the airlines face the question of how much to import. They cannot go for bulk import because of storage space and costs involved. This can lead the airlines to a dilemma: If they resort to bulk import, there will be large and unmanageable inventory, which they do not require and if they do not do bulk import, they won’t save on freight. Public sector oil marketing companies – which have monopoly in selling ATF to airlines – have already said they will not be able to rent out storage capacity.

Besides paying port charges including rent and import charges, there is the issue of transportation of aviation turbine fuel (ATF or jet fuel) to airports through either pipeline or road. Here too airlines will incur expenditure.

Aviation expert Rohit Bansal, CEO, India Strategy Group, an apex business advisory, speaking to Deccan Herald, said he did not have much hope that the GoM decision will succeed. “Nothing will happen on the ground, at least in the near term. Where is the common infrastructure to support direct imports? It is foolish to expect oil companies to support importers like Vijay Mallya of Kingfisher who haven’t paid them and will now try to wean themselves off completely.”

If an airline imports, say 10,000-20,000 tonnes of ATF, it will have to be unloaded and stored at ports. Then it has to be transported to those airports where the specific airline flies. Supplying fuel to these airports – at remote areas where requirement could be minimum, carriers will have to spend on infrastructure.

Even if they manage to bring fuel to airports, these airlines can fill ATF to their aircraft only at three airports - Delhi, Hyderabad and Bangalore–which allow refuelling infrastructure to be shared on “Open Access” basis while others don’t.