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PPP in Aviation Fuel Industry
Agenda

INDIAN AVIATION INDUSTRY


               FACTS ABOUT ATF


                           NEED FOR PPP


            ...
INDIAN AVIATION
   INDUSTRY
Indian Aviation Industry

• Fastest growing aviation industry in the
  world (18 % growth per annum, Jan 09
  figures)
• G...
Hindrances to perceived growth

• Regulatory uncertainty on aeronautical
  charges increases level of risk for
  private i...
FACTS ABOUT ATF
What is Aviation Turbine Fuel?
• Used for powering jet and turbo-prop
  engine aircraft
• Currently two main grades of tur...
Facts of ATF (India)
• ATF constitutes 40 per cent of airlines'
  operating cost in India, compared with 20-25
  per cent ...
Indian Aviation Turbine Fuel Market

• Highly controlled and monopolized market
• Pricing traditionally been determined by...
Indian Aviation Turbine Fuel market

• Pricing Mechanism for ATF




Source: http://www.scribd.com/doc/3900618/Atf-Document
Prices of ATF
• There are no imports of ATF (aviation
  turbine fuel) and it is a freely priced
  petroleum product in Ind...
State Taxes




Source: http://www.scribd.com/doc/3900618/Atf-Document
Global Price Trends




Source: Airline industry outlook remains fragile-www.iata.org/economics
Global Price Trends




Source: http://www.scribd.com/doc/3900618/Atf-Document;
http://www.iata.org/whatwedo/economics/fue...
Current Players in ATF Market

• Before 2005, ATF marketing was a monopoly of the state-
  owned oil companies like Indian...
NEED FOR PPP
What brought us here?

• Supply of jet fuel in all of India has
  been the monopoly of three state-
  owned oil marketing ...
Need for PPP

• State-Owned Oil Giants
  • Exploration and extraction
    of ATF Technological
    advances
  • Newly crea...
Need for PPP
• Private players
  • Easy Government approvals for expansion plans
  • Better profit margin in domestic sale...
OUTCOMES
Current PPP
• Buy Build Operate (BBO) Model to be
  used for a JV between the public and
  private partners
  • E.g. India...
Advantages of PPP

                  • Government run companies not working to their
Efficient Asset     full capacity
  U...
Current Scenario

• States are opposed to bringing ATF under the
  declared goods category, as demanded by airlines.
  If ...
Measures by the Government

• A Group of Ministers (GoM) was set up in August 13, 2009 to
  study the impact of high jet f...
References

• http://news.outlookindia.com/item.aspx?661953
• http://www.iocl.com/Products/AviationTurbineFuel.aspx
• http...
Public Pvt Partnership in ATF (Indian Scenario)
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Public Pvt Partnership in ATF (Indian Scenario)

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Transcript of "Public Pvt Partnership in ATF (Indian Scenario)"

  1. 1. PPP in Aviation Fuel Industry
  2. 2. Agenda INDIAN AVIATION INDUSTRY FACTS ABOUT ATF NEED FOR PPP OUTCOMES
  3. 3. INDIAN AVIATION INDUSTRY
  4. 4. Indian Aviation Industry • Fastest growing aviation industry in the world (18 % growth per annum, Jan 09 figures) • Government's open sky policy -> many overseas players entering the market • Growing both in terms of players and number of aircrafts (310 carriers + 480 in order) • Private airlines account for around 75 per cent share of the domestic aviation market.
  5. 5. Hindrances to perceived growth • Regulatory uncertainty on aeronautical charges increases level of risk for private investors • Significant slowdown in aviation traffic • Affect on AAI’s capital expenditure plans • Increasing aviation turbine fuel (ATF) prices and taxes on the fuel continue to push up costs
  6. 6. FACTS ABOUT ATF
  7. 7. What is Aviation Turbine Fuel? • Used for powering jet and turbo-prop engine aircraft • Currently two main grades of turbine fuel in use in civil commercial aviation: Jet A-1 and Jet A - kerosene type fuels. • Aviation fuels consist of blends of over a thousand chemicals, primarily Hydrocarbons & additives such as antioxidants and metal deactivators, etc. • Principal components include n-octane and isooctane.
  8. 8. Facts of ATF (India) • ATF constitutes 40 per cent of airlines' operating cost in India, compared with 20-25 per cent globally. • ATF price per kl averaged between Rs 24,000 to Rs 26,000 from the entire East and South- east Asia to Dubai, London and New York. • Price in states like Andhra Pradesh, which had the lowest sales tax rate of four per cent, ranged between Rs 34,000 and Rs 35,000. In Delhi, it was Rs 38,000, in Mumbai over Rs 40,000 and in Kolkata Rs 46,000 (Aug 09) • High ATF costs erode the profitability of a FSC carrier by 10% and that of a LCC by 15%
  9. 9. Indian Aviation Turbine Fuel Market • Highly controlled and monopolized market • Pricing traditionally been determined by the Government under the Administered Price Mechanism (APM) • In April 2001, APM dismantled and oil companies given freedom to price ATF based on input costs and world market prices. • Still, the price of ATF in India continues to be much higher. Due to: • Irrational tax structure • Cartelization of oil PSU's and monopoly of pricing
  10. 10. Indian Aviation Turbine Fuel market • Pricing Mechanism for ATF Source: http://www.scribd.com/doc/3900618/Atf-Document
  11. 11. Prices of ATF • There are no imports of ATF (aviation turbine fuel) and it is a freely priced petroleum product in India Prices • The price of domestically produced 45000 ATF is based on import parity price 40000 35000 factoring in the basic customs duty. 30000 • There is a continued monopoly of the 25000 20000 three state-owned oil companies: 15000 Indian Oil Corp., Bharat Petroleum 10000 5000 Corp. Ltd and Hindustan Petroleum 0 Corp. Ltd. • These PSU Oil firms, revise jet fuel rates every fortnight based on trends in international markets • High rates of sales tax are imposed by various state governments on aviation turbine fuel (ATF)
  12. 12. State Taxes Source: http://www.scribd.com/doc/3900618/Atf-Document
  13. 13. Global Price Trends Source: Airline industry outlook remains fragile-www.iata.org/economics
  14. 14. Global Price Trends Source: http://www.scribd.com/doc/3900618/Atf-Document; http://www.iata.org/whatwedo/economics/fuel_monitor/price_analysis.htm
  15. 15. Current Players in ATF Market • Before 2005, ATF marketing was a monopoly of the state- owned oil companies like Indian Oil, Hindustan Petroleum, Bharat Petroleum, Oil and Natural Gas Corporation (ONGC) • Private oil companies Reliance Industries Ltd, Essar Oil and Shell India entered aviation turbine fuel (ATF) marketing after 2005 • Reliance already had started marketing ATF abroad and is presently exporting premier quality ATF to various countries • Reliance has 3.6 million metric tonne per annum (MTPA) ATF production capacity at its Jamnagar refinery in Gujarat and Essar Oil has a 10.5 MTPA refinery at Vadinar in Gujarat that produces ATF • Reliance currently produces about 2.95 million tonne per annum of ATF at its Jamnagar refinery, most of which is exported. • Essar Oil, which also has also been exporting its entire 1.44 million tonne of ATF production, started marketing it in the domestic market from 2008
  16. 16. NEED FOR PPP
  17. 17. What brought us here? • Supply of jet fuel in all of India has been the monopoly of three state- owned oil marketing companies and they typically priced the fuel at about 65% higher than it is available in many airports outside India. • With new private players entering the market, the hold of the three giants seems to be wavering.
  18. 18. Need for PPP • State-Owned Oil Giants • Exploration and extraction of ATF Technological advances • Newly created facilities to supply fuel at many Indian airports. • .
  19. 19. Need for PPP • Private players • Easy Government approvals for expansion plans • Better profit margin in domestic sales compared to exports • No setting up new infrastructure costs on airports that amounts to saving 115 crores • Aviation Industry/ Consumers • Public players monopoly ends • ATF prices might soften for the industry, making air travel cheaper.
  20. 20. OUTCOMES
  21. 21. Current PPP • Buy Build Operate (BBO) Model to be used for a JV between the public and private partners • E.g. IndianOil Skytanking (IOSL), a consortium of Indian Oil Corporation, Indian Oiltanking and Germany’s Skytanking • Wraparound Addition • E.g. ONGC-subsidiary Mangalore Refinery tie up with Shell Aviation
  22. 22. Advantages of PPP • Government run companies not working to their Efficient Asset full capacity Utilization • Use of airport infrastructure for storage and machinery for fuel transportation at airports Dilution of • No Monopoly ensures optimization of prices Monopoly • Regulatory framework emerging • Private entities more accountable to stakeholders than public Accountability • This leads to better dealings of issues and better efficiency and productivity with the private sector.
  23. 23. Current Scenario • States are opposed to bringing ATF under the declared goods category, as demanded by airlines. If ATF brought under declared goods, no state would be able to impose more than four per cent sales tax on jet fuel. • The sales tax rates, which vary from state to state, range from a mere four per cent in Andhra Pradesh to over 30 per cent in several other states. • The airport economic regulatory authority (AERA) is formed by the Civil Aviation Policy to regulate air tariffs and performance standards for domestic aviation sector.
  24. 24. Measures by the Government • A Group of Ministers (GoM) was set up in August 13, 2009 to study the impact of high jet fuel prices on the aviation industry and recommend measures to bring down its burden on the operational costs of the airlines (Aug 2009) • Focus is on the "very high nature" of sales tax being imposed on aviation turbine fuel (ATF) by various state governments as also its base price, which was "much higher" than most countries • the prices of jet fuel had increased by as much as 99.6 per cent in one year http://news.outlookindia.com/item.aspx?664294
  25. 25. References • http://news.outlookindia.com/item.aspx?661953 • http://www.iocl.com/Products/AviationTurbineFuel.aspx • http://www.financialexpress.com/news/ril-essar-shell- eye-domestic-atf-business/135436/ • http://www.jsalaw.com/files/OG%20April%202005.pdf • http://economictimes.indiatimes.com/News/News-By- Industry/Transportation/Airlines-/-Aviation/Aviation-fuel- supply-Private-refiners-ready-for-take- off/articleshow/2771958.cms?curpg=2 • http://www.dancewithshadows.com/aviation/aviation- turbine-fuel-prices-up-by-67-per-cent-in-india/
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