Beijing puts its plans for jet fuel liberalisation on hold

PUBLISHED : Tuesday, 21 January, 2003, 12:00am
UPDATED : Tuesday, 21 January, 2003, 12:00am

Beijing has taken an apparent step backwards in its plans to open the aviation fuel sector in the mainland to competition with the release of an official directive that says the central government plans to effectively maintain the industry's status quo indefinitely.

According to a joint directive unveiled on Friday by the General Administration for Civil Aviation in China (CAAC), State Development Planning Commission (SDPC) and the State Economic and Trading Commission, applications to set up new ventures in the mainland to procure and store jet fuel and to provide refuelling services would not be considered until the three entities could work out new regulations on how to allow competing companies into the jet fuel sector.

At present, the mainland jet fuel monopoly is controlled by China Aviation Oil Holdings (CAOH), one of six companies set up by the central government late last year as part of moves to privatise China's aviation industry.

The directive, published in the latest issue of the CAAC Journal, continued by stating that the development of new jet fuel storage and refuelling facilities at mainland airports has also been frozen. But applications for renovation or expansion of existing facilities could be obtained from the State Development Planning Commission or the CAAC, the directive said.

Industry observers had expected Beijing to follow up its earlier moves by unveiling a timetable for further liberalisation in the jet fuel sector, as it has already done for airfare deregulation. But the directive gave no indication of when the new market entry regulations would be developed.

The directive explained that the reason for maintaining the present monopoly was to give Beijing authorities more time in developing a stable market, to improve its norms and specifications for constructing new facilities and to ensure flight safety. As well, it wants to 'avoid chaos in the market and wasteful construction of aviation oil supply facilities'.

A major concern of mainland carriers has been the highly regulated price of aviation fuel in China, which is sold with a mark-up of about 40 per cent over the international spot market price. This is partly as a result of high tariffs and also high domestic distribution costs.

Observers said it may take several years before Beijing will begin dismantling its jet fuel monopoly, given its perception as a strategic commodity.