New Delhi: Reports ahead of the weekend had indicated that banks had rolled back lending to the three oil marketing companies on account of a liquidity crunch.
The three nationalised oil marketing companies, Indian Oil, Bharat Petroleum, and Hindustan Petroleum, consequently found their source of funds drying up as commercial banks roll back lending on account of the industry-wide liquidity crunch and the high debts accumulated by these companies due to forced subsidies on the sale of petroleum products. (See: Banks roll back advances to Indian Oil, HP and BP)
Now, this liquidity crunch is driving the three public sector oil marketing companies to demand from domestic airlines payment for dues for aviation turbine fuel (ATF) already purchased, failing which supplies would be suspended. The three companies currently supply ATF to domestic airlines on credit.
Reports now suggest that the three oil marketing companies have served a joint notice to domestic airlines asking them to pay up all their outstanding dues by 22 October, if they want further supplies of ATF on credit. In case airlines fail to clear their dues, ATF supplies would be done only on a cash and carry basis.
Previously, the Indian Oil, HP and BP had asked domestic airlines to clear their dues by 14 October, though later the deadline was extended by around two weeks. The three companies supply around 4.5 million tonnes of jet fuel per annum to domestic and international airlines.
This move has been brought about by the existing liquidity situation, and forms the first step of cutting back on credit and discounts. They say a similar request has been placed before large volume diesel customers as well.
Though auto fuel and cooking gas prices are governed by the government's controlled pricing policy, jet fuel prices are market determined and go up and down each month depending on prices prevailing in the international market. Oil marketing companies lose revenues on account of selling auto fuels such as petrol, diesel, LPG and kerosene at government controlled prices that are well below cost price.
The past two months have witnessed a 20 per cent fall in the price of jet fuel, following the trend in the international market. Even so, the Indian aviation industry has been complaining about the higher prices of aviation turbine fuel paid by domestic airlines, and even appraised the Prime Minister at a meeting in June this year that ATF rates for domestic aviation companies were around 60 to 70 per cent higher than international prices.
In contrast, the government's fuel pricing policy subsidises kerosene by 77 per cent, diesel by 47 per cent and petrol by 29 per cent. Present prices of ATF paid by domestic airlines are around Rs 58.48 a litre, down marginally from the Rs61.83 paid by them last month in Mumbai. In Delhi, ATF costs Rs56.48 a litre.