ATF vs diesel price

“अंधेर नगरी चौपट्ट राजा टके सेर भाजी टके सेर खाजा”

A country is doomed/blinded when a foolish ruler ruins it by pricing the goods arbitrarily and with no bearing of the cost of production.

India is probably the only market in the world where ATF (aviation turbine fuel) is cheaper than High Speed Diesel. ATF needs to be processed several times and refined to pass the stringent tests by commercial airliner. On the other hand diesel (even high speed variety) is quite crude and only notches above furnace oil. That is the reason why shipping, trucking and other price sensitive commercial carriers prefer it.

I oppose such capricious moves for couple of reasons:

1. Are you going to have autorickshaw drivers, truck drivers experimenting with the ideal blend fo ATF in their tanks? Isn’t it a colossal waste of energy spend in refining this fuel?

2. Prior to 2013-14 Government had arbitrarily kept ATF prices in India, highest in the world. It is debatable if this led to perpetual bankruptcy of AirIndia and several other airlines. However I know this for sure that several airlines wasted their precious capital in setting up oil distribution network at airports, something that is not their core business nor leads to any efficiency.

3. Such arbitrary shift in policy is neither sustainable nor good for the country. Several international airlines charted their routes so that they did not have to refuel in India. Indian airlines could not expand because their capital was blocked in directly importing ATF. Today in service industry efficiency is the key to survival and such fluctuations in policy only compounds the problem.

In my early career, I used to do a rookie mistake of putting all the downsides or sources of losses of any transaction under the risk category. It was corrected by highlighting that any situation that leads to a guaranteed loss/negative cash flow is not a risk as it has been fully captured in the deal pricing. A risk is uncertainty in the outcome of any legal exposure, policy or market dependency that could impact (positively or negatively) your understanding/confidence on the realization of the profitability of the transaction/future of the business. Companies can handle adverse market scenario as that can be priced in the value of goods and services. However uncertainty not only impacts the prices, but makes people averse to make large investments with a longer time horizon. in other words:

Inconsistency makes people myopic and nobody makes investments to realize the optimal long term efficiency.

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