NEW DELHI: The Union Cabinet has sanctioned a Rs 10,000 crore aviation turbine fuel (ATF) price stabilisation programme designed to shield domestic airlines from the impact of escalating fuel costs. This initiative aims to ensure the continuity of air connectivity and mitigate significant fluctuations in airfares.
Information was available with The Chenab Times that the scheme will facilitate interest-free advances of up to Rs 10,000 crore to state-owned oil marketing companies (OMCs). This funding will enable them to supply ATF to scheduled Indian airlines at a stabilised rate for both domestic and international flight operations.
The implementation of this support mechanism comes at a time when international ATF prices have seen a substantial increase, rising to approximately Rs 142 per litre in May from Rs 60.50 per litre in March. This surge places considerable financial strain on airlines, as fuel costs constitute nearly 40 per cent of their operating expenses, and can reach as high as 60 per cent during periods of extreme price volatility.
Under the approved arrangement, OMCs will receive compensation whenever international import parity prices surpass a predetermined benchmark level. Any financial support extended to OMCs is slated for recovery once global fuel prices stabilise. The recovered amounts will be remitted back to the Consolidated Fund of India through a clearly defined true-up process.
Announcing the cabinet’s decision, Information and Broadcasting Minister Ashwini Vaishnaw stated that the budgetary support is intended to assist airlines in navigating the current environment of rising ATF prices, which have been exacerbated by geopolitical conflicts and the closure of airspace by Pakistan for Indian carriers.
The heightened prices of aviation turbine fuel, a significant component of an airline’s operational expenditure, are a direct consequence of the West Asia crisis that commenced in late February.
Mr. Vaishnaw elaborated that the fund would play a crucial role in stabilising ATF prices for scheduled Indian carriers, thereby preventing any potential disruptions to their operations. He further explained that as long as the global turmoil persists, airlines will benefit from a stable ATF price. Once the crisis subsides, participating airlines will be obligated to reimburse the support amount received.
According to the minister, this measure is expected to shield air passengers from substantial fare hikes, which are often driven by global oil price surges. Additionally, the initiative is anticipated to protect the approximately 77 lakh jobs that are dependent on the aviation ecosystem.
The budgetary support will be disbursed as interest-free advances to OMCs, channeled through the Demands for Grants of the Ministry of Petroleum and Natural Gas, as detailed in an official release.
The funding is intended to help OMCs maintain stable ATF pricing for airlines during the current period of exceptionally volatile fuel prices stemming from the West Asia crisis.
The established corpus will compensate OMCs for any financial losses incurred due to elevated international ATF prices, specifically when the prevailing Import Parity Price exceeds the benchmark price determined under the approved mechanism.
The statement further clarified that upon moderation of international ATF prices, the differential amount will be recovered from OMCs and credited back to the Consolidated Fund of India. This arrangement is set to continue until the entire advance amount is fully recovered and settled.
The ATF price stabilisation support is scheduled to remain in effect for a period of 36 months, with provisions for annual reviews. Alternatively, it will conclude once the advance amount is fully recovered or settled, whichever occurs earlier.
Mr. Vaishnaw also indicated that the fund would contribute to safeguarding public investments in airport infrastructure by ensuring the financial viability of airline operations. This is particularly relevant in maintaining air connectivity to Europe, North America, and Central Asia, especially considering the ongoing closure of Pakistani airspace to Indian carriers.
Indian airlines are currently compelled to adopt longer flight paths for international routes, leading to increased fuel consumption. This situation is compounded by the closure of Pakistani airspace, which has been in effect since early last year.
While ATF prices have been capped for domestic operations, Indian carriers continue to procure fuel for international flights at Import Parity Prices (IPP). This exposes them to the burden of elevated fuel costs.
However, the capping of ATF prices is recognized as a temporary measure and not a sustainable long-term solution for OMCs. The capping, coupled with volatile and surging ATF prices during the West Asia crisis, has resulted in OMCs incurring significant losses, the statement concluded.
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The Chenab Times News Desk
