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The Indian Aviation Turbine Fuel (ATF) market is highly controlled and one that is the
monopoly of State Oil marketing companies. Additionally, across states, the ATF market
(otherwise also known as Aviation Jet Fuels), has a high variable tax structure. ATF
pricing in India has traditionally been determined by the Government under the
Administered Price Mechanism (APM). APM typically meant that the Government fixed
the price of the products and ensured that the oil companies achieved a fixed level of
profitability subject to their achieving their specified capacity utilization. In April 2001,
the Government dismantled the APM and oil companies were given the freedom to price
ATF based on input costs and world market prices. However, despite the withdrawal of
APM, the price of ATF in India continues to be much higher than the prevailing
international prices. This is primarily because of:
Irrational tax structure
Cartelization of oil PSU's and monopoly of pricing
Existing ATF Pricing Mechanism in India
The price of ATF in India is based on International Import Parity prices. However, the
ATF supplied by Indian oil companies is refined in India from imported crude. There is
no direct import of ATF. The import duty on ATF is 20 percent but the import duty on
crude is only 10 percent. Still, the oil companies charge a 20 percent add-on to the
Refinery Transfer Price (RTP). Apart from this, oil companies also include a 16 to 49
percent add-on towards marketing margins and contingencies on the Refinery Transfer
Price after the addition of the import parity add-on. This add-on varies between various
cities. On this, the Central Government levies an excise duty of 8 percent. On the
resultant price, the various State Government levy local sales taxes ranging from 4 to 39
percent, which on an average work out to 25 percent countrywide. The total Government
levies thus work out to an add-on of 35 percent. Thus, effectively the price of ATF in
India works out 60 to 70 percent higher than international benchmarks.
Chart 1: ATF Pricing Structure