New Delhi: The government's Rs 10,000-crore scheme to stabilise aviation turbine fuel (ATF) prices has failed to get off the ground, with no airline signing up as a slide in international oil prices stripped the capped rate of its appeal, sources said, according to news agency PTI.
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The Union Cabinet last month cleared the one-time Rs 10,000-crore scheme to compensate state-owned fuel retailers for supplying ATF to airlines at capped prices for up to three years, with the aim of shielding carriers from the surge in fuel costs triggered by the West Asia crisis.
The scheme was designed as voluntary, with airlines expected to sign agreements with oil marketing companies (OMCs) to access the capped price of about Rs 115 per litre. So far, however, no carrier has opted in, sources said. With no airline participating, the scheme has not technically been set in motion.
The likely reason, sources indicated, is that international oil prices began falling around mid-June, making the capped rate unattractive. On July 1, ATF prices dropped to Rs 110 per litre from the Rs 115 rate announced on June 9, leaving the capped price above the prevailing market rate.
Under the 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. This worked out to an effective selling price of Rs 115 per litre in Delhi, Rs 114.5 in Mumbai and Rs 139 in Chennai. Carriers choosing to stay out of the scheme were to pay market-linked prices.
Market-linked ATF was around Rs 142 per litre when the scheme was announced on June 3. Prices have since softened after an interim peace deal between the United States and Iran eased concerns over possible supply disruptions through the Strait of Hormuz, a key global oil shipping route.
Airlines opting in were to continue receiving ATF at Rs 115 per litre for up to three years, insulated from global benchmark swings. Non-participating carriers, by contrast, stand to gain when prices fall but face higher costs when international rates climb.
When the capped price of Rs 115 per litre was announced, the prevailing retail ATF price in Delhi was about Rs 105 per litre, a level unchanged since April, following only a partial pass-through of the higher global fuel costs that followed the outbreak of the West Asia conflict in late February. The price freeze left OMCs with losses on ATF, adding to their under-recoveries on petrol, diesel and LPG, sources said.
To address these losses, the Cabinet approved the Rs 10,000-crore stabilisation scheme, intended to cap ATF prices and shield airlines from geopolitics-linked volatility while supporting the financial health of state-owned oil companies.
Under the scheme's design, whenever global benchmark prices rose above the base rate of Rs 86.32, the government was to extend an interest-free advance to OMCs to cover the difference. When prices fell, the differential was to be recovered from the companies and returned to the Consolidated Fund of India.
Sources described the arrangement as not a subsidy but a temporary stabilisation framework meant to smooth fuel-price volatility while ensuring accountability, monitoring and full recovery of funds.
ATF typically accounts for about 40 percent of an airline's operating expenses and can climb to as much as 60 percent during periods of sharp volatility. International jet fuel prices had risen to as high as Rs 142 per litre in May, up from pre-war levels of Rs 60.50 per litre, raising concerns over operating costs and possible fare increases.
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By limiting airlines' exposure to extreme fuel-price swings, the scheme was intended to curb the pass-through of such costs to travellers and offer greater fare stability, sources said.
