High infrastructure and product costs may become a party spoiler for the airline companies that have got the nod to import jet fuel directly to save on high sales tax component.
Industry trackers say that the airlines may end up paying more as they have to import a minimum parcel size, irrespective of their requirement.
Also, if the airlines do not create their own infrastructure, both at port and airport locations, they may have to pay the oil companies for using theirs, which can end up being more expensive, thus offsetting the benefit of direct imports.
While the airlines may save on sales tax which ranges from 8 per cent to 25 per cent in different States, they will need to spend a hefty amount on building port/airport infrastructure, besides transport, and refuelling facilities to fuel the aircraft, for which skilled manpower is a key requirement, which airlines do not currently have, industry observers say.
The existing infrastructure, built years ago by oil the companies, had cost them on an average around Rs 60-100 crore at each airport. There are more than 100 airports which are used by different airlines, covering inland, tier-1 and tier-2 cities.
There is also the issue of credit facilities which airlines are at present enjoying with oil companies This may evaporate when they resort to direct imports, as they would have to make the payment upfront and in foreign currency. This can only burden the airlines more and not reduce it, sources say.
Sources also say that another key concern will be for the domestic refiners, for whom lesser jet fuel offtake would mean scaling down of production of not only aviation turbine fuel, but other middle distillates such as diesel, which can make the latter in short supply resulting in consequent increase of diesel imports.
Reduction in refining capacity will also impact the gross refinery margins of oil refiners and downstream companies, which are already reeling under severe losses on account of selling their products below cost. Currently, the annual estimated demand for jet fuel is around 6.5 million tonnes and is growing at double digits.
richam@thehindu.co.in