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Direct fuel import may not be easy for Kingfisher
November, 17th 2011

Kingfisher Airlines chief, Mr Vijay Mallya, might end up buying more trouble if the Government actually accepts his plea to be allowed to directly import jet fuel.

High infrastructure and product transportation costs could negate the benefits which Mr Mallya is looking to gain from saving sales tax paid on the product.

Reeling under a severe financial crunch, Kingfisher had approached the Directorate-General of Foreign Trade for direct import of jet fuel to save sales tax.

Oil industry officials said that merely importing the product would not be enough. The company will need to spend a significant amount on building port/airport infrastructure, transport, facility to fuel the aircraft, and skilled manpower. For instance, the existing infrastructure, built years ago, had cost the oil companies around Rs 60-100 crore at each centre.

They wondered whether Kingfisher has enough resources, including land, to build the infrastructure. Also, oil industry sources wondered whether Kingfisher would be able to pay for the imports in dollars, when it is unable to clear its mounting domestic fuel bills.

If Kingfisher does not create its own fuel-handling infrastructure, it would have to pay the oil companies to use their infrastructure, which may prove both difficult and expensive.

If allowed to import directly, Singapore could be the cheapest source, industry experts said. Reports suggest that jet fuel cost in some States is around 70 per cent more than what it is overseas. Jet fuel import is currently canalised through state-owned oil companies. Kingfisher would need to get a No-Objection Certificate' from them for direct import. Official sources said there have been cases where the Government has given exemption for some other items.

MAY TRIGGER CHANGE IN POLICY

The Government may consider changing its policy on jet fuel if it finds merit in Kingfisher Airlines' application to directly import the fuel, according to top Commerce Ministry sources.

While maintaining that they were not aware of any such application so far from either Kingfisher Airlines or any other airline company, the sources admitted Kingfisher's plea could become a test case for allowing airlines to directly import fuel.

If it comes to such a stage, then the Government will have to consider the reasons behind the restriction on import and whether it was valid in today's scenario.

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