Thursday, August 27, 2009

Petroleum Ministry rules out reducing ATF price

Petroleum Ministry lined out reducing the base price of ATF as demand by the cash-strapped aviation industry, saying there was little scope for tinkering given the low margins oil firms earn on processing of basic bought at international rates.

"(While) the base price (of jet fuel or ATF) is linked to international prices (import parity), the price build-up has a significant tax component," Petroleum Secretary R S Pandey told reporters.

State-run fuel retailers Indian Oil, Bharat fuel and Hindustan Petroleum pay international rates for buying crude oil and so the products refineries produce are also priced at international parity.

Pandey said refinery margins or the value a company earns for processing a barrel of crude oil, were low. "Margins are not very high... they have (infact) shrunk in recent days and you have to appreciate this (before seeking a cut in base price)," he said.

Central and state taxes make up for more than one-third of the jet fuel price, he said, adding the Government does not control the price of aviation turbine fuel (ATF) as it was a deregulated product. The Rs 37.48 per litre selling price of ATF in Mumbai comprised Rs 13.46 a litre in excise duty and sales tax.

"Taxes are entirely in domain of the finance ministry and the states," he added. The basic price for jet fuel in Mumbai, the nation's busiest airport, is Rs 24.02 per litre. Freight and other costs add Rs 3.68 to the price while excise duty contributes Rs 2.28 a litre.

State sales tax is the biggest component, making up for one fifth or Rs 7.50 per litre of the retail ATF price. Sales tax is the highest in Chennai adding Rs 9.03 to the price and the lowest in Delhi where only Rs 6.05 a litre is added.

In Kolkata, the state government earned Rs 8.88 per litre from jet fuel sales.
"The methodology adopted in fixing the price of ATF by the public sector oil marketing companies at the airports is based on the ex-refinery price of jet fuel which is linked to the import parity price," Pandey said.

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