The Parliamentary International Relations and Labour Committee on Thursday directed the Supplies and Tourism ministries to set prices of aviation turbine fuel (ATF) as per the market rate.

The committee said that the Nepal Oil Corporation (NOC) has been selling the aviation fuel much higher than the market price. Airlines have been passing the burden of fuel price hikes directly to travellers in the form of a fuel surcharge, making airfares beyond the reach of a vast section of the population.

The corporation has been adopting a cross-subsidy mechanism by increasing aviation fuel prices to stabilize prices of other petroleum products. On September 28, 2014, NOC had adopted an auto-pricing mechanism for petroleum products (diesel, petrol and kerosene). However, the system has not been implemented for aviation fuel.

The corporation makes a profit of Rs 61.61 on a litre of jet fuel sold to international carriers, which adds up to Rs 215.6 million in monthly profits. Foreign airlines pay $1.33 per litre of aviation fuel.

Likewise, its monthly profit on sales of ATF sold to domestic carriers stands at Rs55.1 million. Domestic airlines are charged Rs118 per litre of aviation fuel which yields the corporation a profit of Rs36.71 per litre.

On November 8, 2014, the state-owned oil monopoly doubled the price of aviation fuel sold to domestic carriers to Rs232.78 per litre from Rs118 per litre as it has to be flown in due to trade blockade by India which had virtually cut off shipments by surface transport.

Airlines did not wait long to jack up the fuel surcharge. A ticket on all sector was jacked up subsequently, with Kathmandu to Dhangadhi being the highest fare of Rs15,595 one way.  

Airlines said that fuel accounts for 30-35 percent of the total operating costs, and it becomes the single biggest factor in losses if the fuel surcharge is not raised.