By Special Correspondent: Oil & Gas experts reveal that Aviation Turbine Fuel (ATF), a form of Kerosene, is one of the most profitable and important business verticals of Oil & Gas Companies. In India, traditionally, ATF business has been giving excellent returns. It is also relatively impervious from most price controls/checks which the government directly or indirectly imposes on POL products. ATF prices were till 2001 regulated under Administered Price Mechanism (APM) and thereafter ATF prices were decided by OMCs based on global market price and import-parity prices and linked to benchmark of Platt’s publication of FOB Arabian Gulf ATF prices (AG) principle.
By and large, the factors which determine ATF/ Aviation Fuel/ Jet Fuel Prices in India are: Global Crude Oil Price, Currency fluctuation against US dollars, Production of Crude in various regions of the world, Process refining / Transport cost in local areas, Government VAT, Tax and duties. Apart from the ATF prices per se, the Airport Economic Regulatory Authority (AERA) Act, 2008, provides for the levy or increase of any throughput charges on ATF with the authority’s approval. These charges are levied typically for providing infrastructure and fueling facilities by airport operators. They are based on negotiations between the provider and the buyer.
Any charges levied on fuel are a part of aeronautical tariff. These are higher when the carriers use infrastructure such as fuel hydrants. The authority ensures that there the charges are not unreasonable. Thus, ATF is a relatively ‘safe’ business, bringing in steady returns, to OMCs. Most therefore would like to get their fingers into the ATF honeypot. The flipside is that getting into ATF business means spending huge amounts of money in infrastructure and other paraphernalia.
Observers state that the Oil PSUs were in the business for long, had built infrastructure from scratch and were adept at marketing and more importantly S&D. The supply aspect is very vital to a vastly diversified terrain which India has. They were also able to withstand the vagaries and volatility of the mercurial Oil & Gas market, having learnt from their experience and vast exposure of dealing with crude exporting countries and companies.
The fact that the government was their largest shareholder gave international suppliers, financiers, insurers and bankers a sort of ‘sovereign’ backing. Energy having metamorphed into every nations’ economic driver intent was considered equally important as were profits. These government companies had developed suitable mechanisms which were time tested and served the nation and consumers well. So much so that at one point of time, Indian Oil Corporation Ltd. had a better credit rating than even India!
The MoP&NG was one of the finest, profit focused, scam free ministries. Usually headed by carefully chosen and accomplished Cabinet & State Ministers it ensured that Petrol, Diesel, Kerosene, LPG & ATF was available even during calamities when water & milk became scarce. It was during the early nineties that Oil & Gas PSUs were jolted with the twin onslaughts of Privatization and Sharing its Assets. Private companies were very keen to enter the OiL & Gas market. In July 1999, the world’s biggest Refinery was set on the coastal area of Jamnanagr, Gujarat by Reliance.
Essar in 1996 started construction of a Refinery at Vadinar, in August 2017, a consortium led by Russian oil firm Rosneft acquired Essar Oil’s Vadinar refinery and renamed it Nayara Energy. The global major BP also collaborated with Reliance Industries and made its presence felt since 2011. In early 1999, Cairn made the first Rajasthan discovery – Guda field, followed by Saraswati in 2001. In 2007, Cairn India was listed on the National Stock Exchanges, later the company was delisted from the NSE and the BSE on 25 April 2017 following its merger with its parent company Vedanta Limited. So the saga of Private Oil Companies in India was set into motion.
The juggernaut went from one milestone to another. Followers of Oil & Gas business in India, state that from the beginning, the private sector perceived that its progress depended on dismantling the Oil PSUs or at least reducing their profits and allowing private players to make bigger and better margins. The resultant tug of war, led many a government into an existential dilemma. Babus, with their tenured postings, who in fact actually call the shots, were caught between cross currents and became terribly short of ideas. Being unfamiliar with the nitty-gritty of International & Domestic Oil & Gas business and the strategic important for a nation, they struggled to come to terms with the subtler and strategic aspects.
To them selling the family silver seemed a lucrative option to raise budgetary funds. They pursued it with considerable zeal. In all probability they felt the private sector could take over Oil & Gas Business, almost overnight. Came along the day, when the not so well conceived plans for disinvestment of Oil PSUs was proclaimed. Government has no business to be in business was the refrain. Much efforts and tribulations after, the infamous Bharat Petroleum Ltd. (BPCL) Privatization plan, to sell government’s entire 52.98% stake in BPCL, with an anticipated revenue of approximately of Rs 45,000 crore for the fiscal year 2022, came asunder! But rest is still not history.
Attempts to undermine PSUs continue. Leaders who are to ultimately take decisions, announced one day, forcefully some policy then went back. Be it regarding, privatization, purchases of crude from international market, common carriers, LPG, subsidies etc. Even independent bodies like the PNGRB, having recently announced rhe intent to declare a Bihar based PSU Pipeline as common carrier, suddenly it went silent. Now Government is looking to further ease Petrol Pump Licensing Norms. All these efforts, experts state is to assist the private players, however no one seems to be concerned that Oil PSUs which were the first movers and had spent considerable finances to create infrastructure would incur losses. Ironically, these PSUs had served the nation well during Covid, Kargil War, Natural Calamities, Russian Crude imports etc, Oil PSUs have been servicing the requirements of the nation and citizens with a more balanced approach and not looking for profits alone.
Coming to the latest, not so subtle assail on Oil PSUs ATF business, experts say that it also has a long history. Finding ATF to be a lucrative business but neither having the required infrastructure nor willing to invest heavily, the easier option was of vigorous advocacy of level playing field in form of common usage of facilities. A forceful campaign is therefore on. Experts reiterate that seeking to providing ATF at Airports is not merely about placing ATF there but Tankages and Short Pipelines from the ATF supply locations are vital for ATF business. Storage Tanks are most essential to this business. During August 1996, Indian Oiltanking Ltd (IOT) was founded as a joint venture between Oiltanking GmbH (50%) and the Indian Oil Corporation Ltd and IBP (each 25%).
This entity took away much of the storing business from Oil PSUs. One Private player then tried resorting to importing of ATF in year 2012 to Kolkata and supplying to Airlines. But in 2018 a leading Oil PSU laid a ATF Pipeline from Mourigram to Kolkata which made it far more profitable to use domestic ATF to imported one. One needs to note that Private players will not hesitate to import products or crude than use domestic Oil & Gas if it gives even marginal profits. This is an important aspect (just as Ujjawala Yojana where private companies do not participate) for Energy Security of India. Recently, in 2024 the same Private company which imported ATF to Kolkata has sought access to pipelines and storages that public sector oil companies have built over the years, for supplying ATF from depots and oil refineries. This company, which produces a fourth of India’s ATF, is keen on getting Storage outside Delhi Airport, and Pipelines leading to Mumbai, Bengaluru and Hyderabad Airports. Goa is also said to be in sight of the private ATF suppliers. Readers would appreciate that Private Companies have scant interest in AAI Airports, Defense Airfields, Private Airports, State Owned Airstrips etc. Its left to the Oil PSUs to supply far flung areas of J&K, North East, Andaman etc. What does this signify? Sale of ATF being profitable, the private companies want a share of the pie without concomitant expenditure in infrastructure building or capital investment.
Where does it leave the central budgetary initiative/estimate of economic growth though Capital Investment? Indian consumers have been lucky till now in respect of Oil & Gas prices. But the huge Tariffs imposed on India vis a vis the geopolitical imperatives may have their own impact on India’s Oil Security. These coupled with the increasing dependence on private operators and their sheer profit orientation may bring in a crisis of gigantic proportions. Other nations would certainly like put a hammer in the works for a nation poised to become the 3rd largest economy in the world. Many feel that Oil & Gas PSUs are the much needed shield for the common citizens of India. Therefore, robbing a PSU Peter to pay Paul just does not make sense.
