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Delay in DSP upgrade probe

Sambit Saha

IBP Ltd, the state-run petroleum marketing major, has decided to defer its entry into the aviation turbine fuel business for the time being owing to several factors, including its divestment to strategic investor.

Disclosing this, R S Guha, director (petroleum) of IBP, said the company would not like to rush into the business even though it had identified ATF as a major growth area.

Currently, IBP has the license to market ATF but has stayed out of the business owing to administered price mechanism and taxes. With the decontrol of ATF, announced in the latest Exim policy, IBP has the option to venture into the business. But the IBP management is unwilling to take such a major decision as the Union government, the company's largest shareholder, is in the process of selling off its controlling stake for private players.

IBP's foray into the ATF business would be greatly eased if any foreign player would pick up a stake in the company. Guha said, "Foreign airlines generally avoid buying fuel in India. The present buyers have purchase contracts with other companies for supply. In such a scenario, it will be difficult for IBP to break into this league. However, this may change if some foreign investor, with existing contracts with foreign airlines, buys out the government's stake. Then we can leverage their agreement to our benefit."

There are some external factors also that are holding up IBP's entry into the ATF business. Foremost of them is the issue of tariff rationalization. Guha said the company is waiting for the circular on sales tax and excise duties for a clearer picture on the pricing of ATF in domestic market.

After dismantling of APM on petroleum products and decontrol of ATF, aviation fuel will be sold at import parity, subject to sales tax levied by different states.

Guha said, "A couple of other factors are to be factored in as well. We would like to know if selling of ATF is to be considered as local sale or be deemed as export. Furthermore, the outstanding position in this business is high and it puts pressure on the seller's margin. Consequently, it may not be viable for a new seller who is not assured of big volumes."

However, if IBP decides to enter the business, the company is likely to meet its requirement by directly importing rather than going through state agencies such as Indian Oil Corporation. "In post-decontrolled era, the company is free to import by itself," Guha added.

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