Kingfisher importing ATF is bad economics: Oil companies

New Delhi, Jan 15: As the government mulls allowing Kingfisher Airlines to import ATF directly, oil companies have opposed the move saying the proposal was "bad economics" for the beleaguered airline in view of high taxes and handling cost.

In a detailed response to the application made by Kingfisher to import aviation turbine fuel (ATF) directly, oil firms stated that India is surplus in jet fuel and exports half of its production annually, official sources said.

Allowing direct import of ATF may lead to avoidable simultaneous import/export of ATF and undue burden on port infrastructure in the country, the oil firms said.

Kingfisher believes that by importing ATF directly, it can make substantial savings by not having to pay sales tax (which varies between 4 to 30 per cent from state to state).

Oil firms however say the airline would have to pay 12.83 per cent duty on the imported ATF (additional customs duty or CVD of 8.24 per cent plus a 3 per cent education cess on top of it and an additional 4 per cent special CVD or SAD).

Against this, Kingfisher presently pays only 8.24 per cent excise duty on jet fuel purchases made from oil firms.

Sources said oil PSUs also made it clear that they do not have surplus infrastructure facility at any port location in India, which can be hired by Kingfisher to import ATF.

Besides, the airline would either have to build its own storage tanks or hire those from oil companies for stocking the imported ATF at the ports. It would then have to make arrangements for transporting ATF to airports in trucks.

Even after time and cost consuming exercise, Kingfisher can dispense the fuel into its aircraft at only three airports - Delhi, Hyderabad and Bangalore-- which allow refuelling infrastructure to be shared on "Open Access" basis.

In rest of airports, oil companies have the monopoly and the airline would need to negotiate and enter into specific agreements with these companies for extending their facilities on "open access".

Sources said Kingfisher requirement of ATF during 2011-12 is 4,34,000 tonnes or 33,600 tonnes per month and availability of adequate tankage would be a constraint to receive such parcel sizes.

Also, state governments tend to levy additional entry tax when they feel their revenues are being compromised due to direct imports.

In 1995-96 when import of ATF was undertaken on behalf of ATOs (Air Transport Operators) and Airlines against Special Import Licence, additional entry tax was levied by state governments, the oil companies pointed out.

Of the 9.7 million tonnes of ATF produced in the country in 2010-11, 4.5 million tonnes were exported in 2010-11.

With an increase in refining capacity in the country, surplus ATF would increase by 140 per cent to 7.5 million tonnes in 2016-17 from 5.2 million tonnes in 2011-12 and all of the surplus would have to be exported.

Sources said oil companies feel there is no tariff protection in the form of customs duty differential vis-a-vis crude oil for the domestic refining industry. This in itself is a relief to the airline industry.

More importantly, as per excise and custom rules, the imported ATF is required to be handled in exclusive containers and not co-mingled in existing storage facilities of the oil companies so as not to get into litigation with states on applicability of sales tax.

This means an airline would have to either create its own facilities or hire the logistics support from oil companies or tank company, for handling product right from tanker discharge, storage of product in a separate and exclusive tank and transportation up to concerned airports.

PTI