New Delhi: The Rs 10,000-crore jet fuel price stabilisation programme has failed to take off, with no airline signing up for the scheme as a decline in international oil prices eroded its appeal, sources said.
The Union Cabinet last month approved a one-time Rs 10,000-crore scheme to compensate state-owned fuel retailers for selling aviation turbine fuel (ATF) to airlines at capped prices for upto three years, aiming to shield carriers from surging fuel costs triggered by the West Asia crisis.
The scheme was voluntary, and airlines were to sign agreements with oil marketing companies to avail of the capped price of about Rs 115 per litre. However, no airline has signed up for the scheme so far, sources said.
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This could possibly be because international oil prices started to fall around mid-June, making the capped price unattractive.
On July 1, aviation turbine fuel (ATF) prices in fact dropped to Rs 110 per litre from Rs 115 rate that was announced on June 9.
Under the voluntary scheme, participating airlines were to pay a fixed free-on-board (FOB) benchmark price of Rs 86.32 per litre, plus airport charges, oil company margins and applicable taxes, resulting in an effective selling price of Rs 115 per litre in Delhi, Rs 114.5 in Mumbai and Rs 139 in Chennai. Airlines that do not opt for the scheme are to pay market-linked prices.
Sources said market-linked ATF prices were around Rs 142 per litre when the scheme was announced on June 3. However, prices have since softened following an interim peace deal between the US and Iran, easing concerns over potential supply disruptions through the Strait of Hormuz, a key global oil shipping route.
The scheme was announced to give airlines clarity on fuel prices. Those opting into the price stabilisation scheme were to continue to receive ATF at Rs 115 per litre for upto three years, insulated from global benchmark fluctuations. While non-participating carriers will benefit from price declines, they also face higher costs when international rates rise.
Sources said the scheme was completely voluntary, and airlines had to make a call if they wanted to participate in it.
With no airlines signing up, the scheme has not technically been put in motion, they said.
When the government announced the capped ATF price of Rs 115 per litre, the prevailing retail price in Delhi was about Rs 105 per litre, a level that had remained unchanged since April after only a partial pass-through of higher global fuel costs triggered by the outbreak of the West Asia conflict in late February. The price freeze resulted in losses for state-owned oil marketing companies on aviation turbine fuel, adding to under-recoveries on petrol, diesel and LPG, sources said.
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To address these losses, the Union Cabinet had approved a Rs 10,000-crore price stabilisation scheme aimed at capping ATF prices and shielding airlines from volatility linked to geopolitical tensions, while also supporting the financial health of state-owned oil companies.
Under the scheme, whenever global benchmark prices rose above the base rate of Rs 86.32, the government was to provide an interest-free advance to oil marketing companies to cover the difference. When prices fell, the differential was to be recovered from the companies and returned to the Consolidated Fund of India.
ATF typically accounts for about 40 percent of airline operating expenses and can rise to as much as 60 percent during periods of sharp volatility.
Sources said international jet fuel prices had climbed to as high as Rs 142 per litre in May from pre-war rates of Rs 60.50 per litre, raising concerns over airline operating costs and potential fare increases.
The new arrangement, they said, was not a subsidy but a temporary stabilisation framework intended to smooth volatility in fuel prices while ensuring accountability, monitoring and full recovery of funds.
For passengers, the most important benefit of this decision is that it will help to moderate sudden increases in airfares that often result from sharp spikes in fuel prices. By reducing the exposure of airlines to extreme fuel price fluctuations, the government aims to minimise the pass-through of such costs to travellers and provide greater fare stability.
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