New Delhi: The government's Rs 10,000-crore aviation fuel price stabilisation mechanism will leave Indian airlines paying more for jet fuel either way — because it scraps the price cap that has held fuel rates down for the past two months, a senior civil aviation ministry official has confirmed. Airlines that join the voluntary scheme will pay a fixed Rs 115 a litre for Aviation Turbine Fuel (ATF) in Delhi on domestic operations, up from about Rs 105 today. Those that stay out will revert to the full market price: currently around Rs 142 a litre and set to move with global rates. Either path is an increase on the prevailing capped price.
Follow The PSUWatch Channel on WhatsApp
Rohit Raj, Director in the Ministry of Civil Aviation, told an inter-ministerial press briefing on Thursday that the existing cap would be withdrawn under the new arrangement. "Under the new mechanism the capping won't be prevalent, but we are moving towards a fixed price mechanism," he said.
The current Delhi rate of about Rs 105 a litre (in Delhi) is the product of a cap the government imposed after the West Asia crisis, which has held domestic ATF frozen for more than two months. By removing that cap, the scheme pushes the price up regardless of an airline's choice, softening the increase to a fixed Rs 115 for those who opt in, while exposing the rest to the full, uncapped market rate.
The government has said that the cap was never sustainable and it left Oil Marketing Companies (OMCs) absorbing heavy losses, and that Rs 115 is far gentler than the roughly Rs 142 a litre airlines would otherwise face. But measured against what carriers actually pay today, both outcomes are a hike.
Raj said the benchmark had been set at the free-on-board (FOB) level, stripping out state VAT, Central Excise Duty, airport charges and a fixed differential covering OMCs' domestic freight, insurance and profit margin. On that basis, the benchmark is Rs 86.32 a litre for domestic operations and Rs 104.49 for international operations — figures he confirmed double as the fixed price under the scheme.
Building the Delhi retail price back up from there: the domestic benchmark of Rs 86.32, plus airport charges and the fixed differential, works out to Rs 96.83; adding VAT and central excise takes it to Rs 115. For international operations, the FOB price of Rs 104.49 plus airport charges and the differential also lands at Rs 115. International operations run by airlines attract no VAT or excise. "Rs 115 is the fixed selling price at Delhi for both domestic and international," Raj said.
The base price of ATF in Delhi was Rs 60.50 a litre on March 1, before the West Asia conflict erupted on February 28. Through a volatile April, prices climbed, and by May 1 the uncapped import parity price (IPP) had reached Rs 142 a litre. To keep air services running, the government capped the increase at 25 percent of the March base, about Rs 75.63 at the base level, which, after excise and VAT, produced the Delhi capped price of around Rs 104-105 that has held since.
Because state VAT on ATF varies sharply, the fixed-scheme selling price will differ across cities even for the same FOB benchmark. In Delhi and Mumbai, where VAT is 7 percent, the price works out to about Rs 115 and Rs 114.5 respectively. In Chennai, where VAT is far higher, it rises to about Rs 139. Other states sit in between, with Karnataka at 15 percent and Kolkata around 20 percent.
The scheme is optional. "This is a voluntary scheme. This is not a compulsory scheme where every airline has to come and join," Raj said, adding that only willing carriers would be enrolled. With the cap gone, an airline that declines would be left buying ATF at the prevailing market rate, which moves with global prices.
The arrangement will be implemented through a memorandum of understanding (MoU) between participating airlines and OMCs, with the Ministry of Civil Aviation and the Ministry of Petroleum and Natural Gas as signatories. Airlines can sign an agreement with all the three state-run fuel retailers, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL), as signatories, or one. "They can do it combined or separate. The Ministry of Civil Aviation will not interfere in that," said Raj.
However, under the one-time arrangement, participating airlines will procure ATF exclusively from OMCs for up to three years, paying the fixed price set under the scheme — about Rs 115 a litre in Delhi — regardless of how the global import parity price (IPP) of jet fuel moves.
Raj was categorical that the benchmark is locked for the life of the scheme. "This benchmark price is fixed… there is no possibility of changing the benchmark in future," he said, describing it as a temporary, one-time measure that will end once the corpus is trued up or after three years, whichever comes first. "There won't be any extension of this scheme," he said.
The Rs 10,000 crore corpus will be extended as an interest-free advance to OMCs. When international prices climb above the benchmark, the corpus compensates OMCs for the gap; when prices moderate, the differential is recovered from OMCs and returned to the Consolidated Fund of India (CFI). "The arrangement is intended not as a subsidy but a temporary stabilisation method to smoothen the impact of exceptional fuel price volatility, while ensuring full accountability, monitoring and recovery of the fund," Raj said.
Follow PSU Watch on LinkedIN
ATF typically makes up about 40 percent of an airline's operating costs and can rise to as much as 60 percent during periods of volatility. The pressure has been compounded by the closure of Pakistani airspace to Indian carriers, which has lengthened flight paths and raised fuel burn. The government says the mechanism will give airlines greater predictability, protect connectivity and shield travellers — families, students, business flyers and tourists — from sudden fare spikes driven by fuel costs. The modalities are still being finalised, and the scheme will go live once airlines confirm their participation. The Civil Aviation Ministry official declined to give a timeline beyond "very soon."
(PSU Watch is India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy. 👉 Click to join our channel now: PSUWatch WhatsApp Channel. Prefer LinkedIn? Follow PSU Watch on LinkedIN. Click to stay connected on Twitter here and stay updated.)