Now, it's cheaper to fuel planes than cars

The increase in petrol prices from Saturday midnight has made the fuel more expensive than aircraft turbine fuel, used to power planes.

The reason is a skewed duty structure.

ATF costs Rs 60.56 a litre in New Delhi.

A further price cut of Rs 1.8 was announced on Sunday. Petrol costs Rs 63.37 a litre.

Oil marketing companies price petrol and diesel on a trade-parity basis.

The price includes a 7.5 per cent Customs duty.

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There is no Customs duty on ATF, priced on an import-parity basis. The excise duty on petrol is Rs 8 a litre.

There is no excise duty on ATF.

Internationally, ATF prices are usually higher. This year, the average ATF price has been about $134 a barrel in the Gulf and $137 in Singapore.

Petrol, known as motor spirit, has averaged $128 a barrel.

At the refinery gate, where government oil companies calculate international-parity prices, the situation reverses.

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For instance, the ATF price was Rs 53,058 per kilolitre at Indian Oil's Mathura refinery last week, while the price of petrol was Rs 50,380 per kilolitre.

Though OMCs are free to price petrol since June 2010, they use the government-dictated formula to calculate the import-parity price, which includes Customs duty and the export-parity price in the proportion of 80:20.

This is the refinery transfer price (RTP), on which OMCs add marketing margins and excise duty.

In case of ATF, OMCs use 100 per cent import-parity price, but as Customs duty on ATF is nil, its RTP is lower than that of petrol.

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"Globally, ATF prices are usually higher than petrol prices. However, in India, higher taxes and import duties have caused petrol prices to reach the level of ATF (prices)," said S V Narasimhan, former director (finance), Indian Oil.

The Customs duty on ATF was removed in October 2008 when domestic airlines were facing a severe financial crisis.

Fuel accounts for 40 per cent of their operating cost.

The ATF price for domestic airlines had peaked to Rs 71,028 a kilolitre in August 2008, when petrol was 30 per cent cheaper than ATF.