Centre Discontinues ATF Price Stabilisation Scheme After MoU Deadline

NEW DELHI — The Ministry of Petroleum and Natural Gas, in coordination with the Ministry of Civil Aviation, has discontinued the ₹10,000-crore Aviation Turbine Fuel (ATF) Price Stabilisation Scheme after Indian air carriers missed the deadline to sign the mandatory Memorandum of Understanding (MoU). Announced on July 26, 2026, the decision follows weeks of non-participation by major domestic airlines, including IndiGo, Air India, and Akasa Air. Designed to protect the aviation sector from international fuel spikes following West Asia geopolitical tensions, the voluntary mechanism lost commercial viability after global crude oil prices eased, causing market-linked jet fuel rates to fall below the government's capped price.

Failure to Secure Airline Sign-Ups and MoU Execution

The ₹10,000-crore price stabilization framework, approved by the Union Cabinet chaired by Prime Minister Narendra Modi in early June 2026, required scheduled Indian airlines to enter into binding tri-partite MoUs with state-owned Oil Marketing Companies (OMCs) and government ministries. Under the proposed agreement, participating airlines were required to procure ATF exclusively from OMCs for up to three years at a capped rate of ₹115 per litre in Delhi.

However, as international benchmark prices softened through late June and July following easing supply concerns in the Strait of Hormuz, market-linked ATF prices dropped to ₹110 per litre on July 1. Because entering the scheme would have locked carriers into paying ₹115 per litre—above prevailing open-market rates—no domestic airline submitted signed MoUs prior to the final administrative deadline.

+-------------------------------------------------------------------------+
|             ATF PRICE COMPARISON (DELHI BENCHMARK 2026)                 |
+-------------------------------------------------------------------------+
|  Pricing Model                      |  Price Per Litre                  |
+-------------------------------------+-----------------------------------+
|  Initial Global Market Surge Rate   |  ₹142.00                         |
|  Government Capped Scheme Rate      |  ₹115.00                         |
|  Current Open Market Rate (July)    |  ₹110.00                         |
+-------------------------------------------------------------------------+

Structure of the Stabilisation Corpus and OMC Cost Pressures

Aviation Turbine Fuel accounts for 40 to 60 percent of an airline's total operational expenses. Following sharp increases in global crack spreads earlier in 2026, state-owned fuel retailers—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)—incurred significant under-recoveries by keeping domestic ATF prices artificially suppressed near ₹105 per litre.

The Cabinet's ₹10,000-crore allocation was structured as an interest-free advance to OMCs to absorb revenue losses when market prices exceeded benchmark levels. The mechanism included a clawback provision requiring OMCs to return surplus funds to the Consolidated Fund of India once global prices declined. With zero airline participation, the interest-free corpus was never drawn down, leading the government to officially terminate the scheme rather than maintain unutilized budgetary reserves.

Impact on Passengers, Airlines, and Fuel Retailers

The discontinuation of the scheme returns the Indian aviation market entirely to transparent, monthly market-linked fuel pricing:

• Impact on Passengers: International passenger fuel surcharges, which spiked up to $280 per ticket during peak March volatility, have moderated to around $125–$200. Airfares will remain directly responsive to global oil fluctuations rather than artificial price floors.

• Impact on Airlines: Carriers retain complete operational freedom to purchase fuel at dynamic market rates or negotiate private hedging contracts, avoiding long-term single-supplier lock-in clauses.

• Impact on Oil Marketing Companies: OMCs will no longer bear under-recovery risks on account of administrative price caps, selling jet fuel at full import parity pricing across domestic airports.

Official Sources Section

According to official notifications from the Ministry of Petroleum and Natural Gas, press disclosures by the Ministry of Civil Aviation, and regulatory filings from state-owned Oil Marketing Companies, the ATF Price Stabilisation Scheme has been officially wound down due to the absence of executed airline agreements.

Official Statements

"According to officials from the Ministry of Petroleum and Natural Gas, the ATF price stabilization mechanism was designed as a voluntary liquidity buffer for extraordinary market conditions. As international crude prices moderated below the capped benchmark, airlines exercised their commercial choice not to opt in, leading to the formal closure of the scheme."

Why It Matters

The winding down of the ₹10,000-crore scheme prevents public funds from being tied up in an unused financial facility, ensuring government capital remains available for other fiscal priorities. For the aviation industry, the decision restores pure market dynamics, enabling airlines and travelers to benefit immediately from declining global energy costs.

Key Facts at a Glance

• Corpus Size: ₹10,000-crore budgetary support approved for state-owned OMCs.

• Capped Price Offered: Fixed benchmark of ₹115 per litre (Delhi) for up to three years.

• Current Market Price: Dropped to ₹110 per litre in July 2026 following lower global crude costs.

• Reason for Termination: Zero airline sign-ups prior to the final MoU execution deadline.

• Status: Scheme discontinued; fuel pricing returns entirely to market-linked rates.

Frequently Asked Questions (FAQ)

Why did the Centre discontinue the ATF price stabilisation scheme?

The government discontinued the scheme because no domestic airline signed the required MoU before the deadline. A fall in global crude oil prices made open-market ATF cheaper than the government's capped rate of ₹115 per litre.

What was the proposed capped price for jet fuel under the scheme?

Under the voluntary scheme, participating airlines would have paid a fixed effective price of approximately ₹115 per litre in Delhi, ₹114.50 in Mumbai, and ₹139 in Chennai for up to three years.

Will ticket prices or airfares increase because of this decision?

No. Because current open-market jet fuel prices (around ₹110 per litre) are lower than the proposed capped rate, airlines are currently paying less for fuel, helping keep airfares and international fuel surcharges lower.

What happens to the ₹10,000-crore allocated fund?

Since the scheme was never activated due to lack of airline participation, the funds were not disbursed to oil marketing companies and remain within the central government budget.

Source: Ministry of Petroleum and Natural Gas Press Releases, Press Information Bureau (PIB) Cabinet Briefings, Ministry of Civil Aviation Bulletins, Official filings by Indian Oil Corporation Limited (IOCL).