The state-run Indian Oil Corporation (IOC), which is struggling to cope up with burgeoning under-recoveries, has made a strong pitch for a duty drawback for various petroleum products including aviation turbine fuel (ATF), to become competitive.

IOC, in its presentation to the petroleum ministry, has argued that there was a need to have duty drawback rates for these supplies in order to make the supply of petroleum products internationally competitive so that the element of customs duty paid on crude oil does not hamper the competitiveness of Indian oil marketing companies (OMCs), and hence, the supply of liquefied petroleum gas (LPG), motor spirit (MS), high speed diesel (HSD), superior kerosene (SKO), and ATF to adjoining countries.

Informed sources told FE that IOC had called upon the petroleum ministry to consider making the all-industry rates of duty drawback — which are at present only available for supply of fuel oil and high speed diesel to special economic zone (SEZ units) — available on supply of ATF to international airlines and bunker fuel to international shipping lines.

According to IOC, due to the growth of the Indian economy, international flights in and out of India are increasing. The price of ATF and bunker fuel was on the higher side on account of the element of customs duty paid on crude oil. As the price of ATF at Indian airports and seaports is uncompetitive, the international airlines and shipping lines are disinclined to take supplies at Indian airports and seaports.

IOC?s plea is also crucial especially when the demand for ATF rose in the fiscal 2007-08 mainly due to a large number of people going in for air travel.

A total of 4,556.1 TMT of ATF was sold in FY2007-08 as compared to 3,982.6 TMT in FY2006-07. Industry sources also admitted that ATF consumption demonstrates consistent growth on account of the continuing boom in the aviation industry.

IOC has reiterated that the highly volatile nature of international petroleum product prices should be reflected in the all-industry rates of duty drawback as a percentage of the freight on board value of exports. It has accordingly worked out the all-industry drawback rate based on the price of the Indian basket of crude oil and export of products during January-March, 2008, an exchange rate of Rs 40 to the dollar and the standard input output norms published by the Directorate General of Foreign Trade. These rates are as follows: For LPG: Drawback rate on customs duty as percentage of FOB value of export is 7.7%, MS: 5.8%, HSD: 5.3%, SKO: 5.1%, ATF: 5.1%.

IOC’s plea is also crucial when its under-recoveries have been of the order of a hefty Rs 43,000 crore for the financial year 2007-08. Every day, the company is losing Rs 238 crore due to under-recoveries. The borrowings increased to Rs 36,000 crore for financial year 2007-08 mainly on account of under-recoveries.

For 2007-08, IOC has sold 58.3 million tonne of petroleum products, registering an 8.7% growth in volumes as compared to the previous year.