PSU oil marketing companies ask airlines to pay up aviation fuel dues

13 October 2008

New Delhi: Reports ahead of the weekend had indicated that banks had rolled back lending to the three oil marketing companies on account of a liquidity crunch.

The three nationalised oil marketing companies, Indian Oil, Bharat Petroleum, and Hindustan Petroleum, consequently found their source of funds drying up as commercial banks roll back lending on account of the industry-wide liquidity crunch and the high debts accumulated by these companies due to forced subsidies on the sale of petroleum products. (See: Banks roll back advances to Indian Oil, HP and BP)

Now, this liquidity crunch is driving the three public sector oil marketing companies to demand from domestic airlines payment for dues for aviation turbine fuel (ATF) already purchased, failing which supplies would be suspended. The three companies currently supply ATF to domestic airlines on credit.

Reports now suggest that the three oil marketing companies have served a joint notice to domestic airlines asking them to pay up all their outstanding dues by 22 October, if they want further supplies of ATF on credit. In case airlines fail to clear their dues, ATF supplies would be done only on a cash and carry basis.

Previously, the Indian Oil, HP and BP had asked domestic airlines to clear their dues by 14 October, though later the deadline was extended by around two weeks. The three companies supply around 4.5 million tonnes of jet fuel per annum to domestic and international airlines.

This move has been brought about by the existing liquidity situation, and forms the first step of cutting back on credit and discounts. They say a similar request has been placed before large volume diesel customers as well.