The Hindu Business Line : Govt to re-look jet fuel prices to pilot airlines to safety

New Delhi, Aug 13 A Group of Ministers is to look into both the high base price of aviation turbine fuel compared to international benchmarks and the incidence of sales tax on aviation fuel.

These are the two major issues affecting the operations of domestic airlines, which are expected to post a loss of Rs 8,000 crore in 2008-09.

This was decided by the Union Cabinet after the Minister for Civil Aviation, Mr Praful Patel, made a presentation on the overall health of the civil aviation sector here on Thursday.

The constitution of the GoM, its membership and terms of reference will all be finalised in the next few days, sources said. “The GoM will primarily look at sales tax on ATF and base price of ATF, which is much higher here than most international cities. ATF accounts for more than 40 per cent of the operating cost of most domestic airlines, compared to the international average of 20-25 per cent,” the Minister told newspersons after the Cabinet meeting.

It is estimated that a Rs 1,000 a kilolitre reduction in price will translate into a saving of Rs 300 crore annually, Mr Patel said.

Senior Government officials said that the States, on an average, collect about Rs 2,600 crore annually from the levy of sales tax on ATF.

According to one estimate of the Finance Ministry, there is a 20 per cent mark-up from the landed price and what airlines pay for the fuel.

To buttress the argument about lowering ATF prices, the Ministry of Civil Aviation also made a detailed presentation to the Cabinet.

The Cabinet was also briefed about the decision of Airports Authority of India to float infrastructure bonds worth Rs 5,000 crore and the long-pending issue of equity infusion into Air India which need Government consideration as it is the owner. “The GoM will not look at these two issues ,” Mr Patel said.

Analysts feel that if the GoM is able to convince the oil companies to lower the base price and persuade the States to agree on a uniform sales tax rate for aviation fuel, it could provide financial relief to the domestic airline industry which saw an average annual growth of 20 per cent between 2003-04 and 2008-09.