Fuel discounts: Is Ajit Singh pampering Air India?

When Jet Airways gets access to cheaper fuel via the deal with Etihad, can Air India be left in the lurch?

The aviation ministry has decided it should not be and so has prodded public sector oil companies to offer discounts to the national carrier, which is expected to record a loss of Rs 5,198 crore in 2012-13.

According to a Bloomberg report quoting an aviation ministry official, Indian Oil Corporation has agreed to sell fuel to Air India at an 8 percent discount. The offer has been handed out after the aviation ministry started discussions with the oil companies, an IOC official has told the news agency.

[caption id=“attachment_758435” align=“alignleft” width=“380”] According to the report, IOC will charge Air India Rs 5,300 lower than the market rate. Flickr Images[/caption]

The report also quotes Aviation Minister Ajit Singh as saying that the fuel prices are effective retrospectively from January 1.

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According to the report, IOC will charge Air India Rs 5,300 lower than the market rate and HPCL and BPCL Rs 5,500.

Interestingly, in March Minister of State for Petroleum and Natural Gas Panabaaka Lakshmi had assured Parliament that the government does not propose to give any discount on fuel to the airline.

The minister had told Parliament that there were no plans to offer any discount to the airline, which owes a whopping Rs 4,324 crore to the public sector oil marketers.

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The discount move also belies Minister Singh’s stand that he cannot think of particular airlines while taking policy decisions.

“Air India has to be on its toes,” he told Mint when asked whether Jet-Etihad deal wouldn’t adversely impact Air India.

The fuel discount proposal is once again proving that Air India, with a huge Rs 43,000 crore debt and promised government infusion of Rs 30,000 crore, is a white elephant for the government.

According to a PTI report, Minister Lakshmi told Parliament that of the Rs 4,324 crore Air India owes to state-owned oil companies, Rs 2,038 crore was overdue outstanding excluding interest and another Rs 2,753 crore overdue outstanding with interest.

Overdue payment is the outstanding that has remained unpaid even after expiry of a 90 day credit or grace period provided by the oil companies.

Air India owes Indian Oil Corp (IOC) Rs 2,545 crore, Bharat Petroleum Corp Ltd (BPCL) Rs 779 crore and Hindustan Petroleum Corp (HPCL) Rs 1,000 crore.

All this, even as the state-owned carrier does not provide any security as insurance against default.

Meanwhile, private carriers such as Jet Airways and Kingfisher Airlines, which have far lower dues to the oil companies, do provide such insurances against their default.

According to Lakshmi’s statement in Parliament, Air India had a total outstanding of Rs 4,277.11 crore as on December 31, 2012, of which a sum of Rs 2,639.65 crore is overdue payment.

Meanwhile, Jet Airways owed Rs 910 crore to IOC but of this only Rs 107.52 crore was overdue. The rest is under 90-day credit period that oil companies extend to Jet and other airlines including Air India.

Jet owned Rs 112.06 crore to BPCL, of which Rs 31.29 crore was overdue. Its outstanding with IOC was covered by a Rs 923 crore bank security which can be encashed in case of default in payment. The outstanding of BPCL has been covered by Rs 150 crore security.

Even Kingfisher Airlines has a Rs 200 crore corporate guarantee to cover its over due payment of Rs 66.72 crore with HPCL.

Need more proof to show Ajit Singh is actually mollycoddling Air India while he pretends to be a hard task master?