New Delhi: Oil marketing companies (OMCs) will sell aviation turbine fuel (ATF) to airlines participating in the newly approved fuel stabilisation scheme at a fixed rate of around Rs 115 per litre in Delhi, irrespective of fluctuations in international fuel prices, the government said Thursday.
The clarification came during an inter-ministerial briefing on the West Asia conflict, a day after the Union Cabinet approved a Rs 10,000-crore Price Stabilization Fund (PSF) for scheduled Indian airlines to shield them from volatility in global ATF prices.
Participating airlines would buy ATF from OMCs at around Rs 115 per litre in Delhi, even though the prevailing market price is currently around Rs 104 per litre. Officials said the fixed-price mechanism is intended to protect airlines from future price spikes.
OMCs will sell fuel to participating airlines at a fixed benchmark price, irrespective of prevailing international fuel prices. Whenever international ATF prices rise above the benchmark level, OMCs will be compensated from the fund for the difference between the market price and the fixed selling price.
“Under the scheme, the government will provide an interest-free advance to OMCs, enabling them to supply ATF to the participating Indian airlines at predetermined and stable prices for both domestic and international operations,” Rohit Raj, director in the Ministry of Civil Aviation, told reporters at the briefing.
“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 funds.”
The one-time budgetary support scheme will provide interest-free advances to OMCs, allowing them to supply ATF at predetermined prices for up to three years once the scheme becomes operational. The Ministry of Civil Aviation, however, did not specify a timeline for its rollout.
Officials said the mechanism is designed in such a way that it will not become a fiscal burden over time. While OMCs will be reimbursed when fuel prices exceed the benchmark level, they will be required to return the differential to the Consolidated Fund of India when market prices fall below the benchmark and conditions stabilise.
Explaining the pricing mechanism, Raj said the government is moving away from a price capping approach to a fixed price mechanism under the scheme.
He said the government has fixed the freight-on-board (FOB) price at Rs 86.32 per litre and Rs 104.49 per litre for domestic and international operations, respectively.
After adding airport charges, fixed differentials, value-added tax (VAT) and central excise duties, the selling price for domestic operations in Delhi works out to around Rs 115 per litre. For international operations, the ATF selling price also comes to the same as VAT and central excise are not applicable.
Officials said the fixed FOB price would remain unchanged for the duration of the scheme, although the final selling price could vary if there are changes in VAT rates, airport charges or other levies.
Because VAT rates vary across states, ATF prices under the scheme will be different across cities. “If we take an example of Mumbai, the selling price of ATF under this arrangement would be around Rs 114.5. And if you go to Chennai, the price would be around Rs. 139, because there the VAT rates are very high,” Raj explained.
For participating airlines, the arrangement will be implemented through MoUs with OMCs, with the Ministries of Civil Aviation and Petroleum and Natural Gas acting as signatories.
The government expects the fixed-price mechanism to provide greater predictability in fuel costs, enabling airlines to plan operations more efficiently across domestic and international routes. Officials also said the scheme could help moderate sudden increases in airfares that is often accompanied by sharp spikes in aviation fuel prices.
(Edited by Tony Rai)