India State Oil Marketers Seek SAF Incentives Before 2027 Blend

India's state-run oil marketing companies are asking the government for fiscal incentives to make sustainable aviation fuel (SAF) affordable ahead of a 1% blending mandate that takes effect in January 2027. Without viability gap funding or tax rebates, executives argue, the cost of SAF – currently three to five times that of conventional aviation turbine fuel (ATF) – will discourage airlines from signing offtake agreements.

The government expanded the definition of ATF to include SAF in April 2025. Shailesh Dhar, Executive Director and Country Head (Aviation) at Indian Oil Corporation (IOC), said the notification "sets the ball in motion for introducing SAF in India." The government is now drafting a SAF policy that will impose specific mandates on airlines and fuel suppliers.

The 2027 Mandate and the Pricing Gap

The government set indicative targets: 1% SAF in jet fuel for international flights from January 2027, rising to 2% by 2028 and 5% by 2030. The global SAF price premium is the biggest immediate hurdle. SAF costs three to five times more than conventional ATF. Airlines in Europe already charge a surcharge to cover mandatory SAF blends introduced in 2025. Singapore will impose a levy of SGD 1 to 42 per ticket from January 2026.

Saleem Farooqui, Senior Principal Scientist at CSIR-Indian Institute of Petroleum, estimates fares could rise by only ₹100-200 per ticket with the initial 1% blend. The small percentage limits the near-term consumer impact.

IOC's Panipat Production: First-Mover Economics

IOC expects to start producing SAF from its Panipat refinery in September 2025. The company has signed a memorandum of understanding with Air India and a letter of intent with Akasa Air for SAF offtake. Dhar said discussions are also underway with foreign airlines.

Offtake Agreements and Investment Certainty

IOC's early production gives it a first-mover advantage. The MoU and LOI provide some demand visibility. The government's policy framework, however, will determine whether these agreements convert into binding long-term contracts. Dhar said the government will consult both airlines and oil companies to address cost-sharing concerns.

BPCL and HPCL: Building Capacity for the Blend Ramp

Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are moving ahead with their own SAF projects, though on later timelines.

BPCL's 60 ktpa Mumbai Facility

Sanjeev Kumar, BPCL's Business Head (Aviation), said the co-processing facility at the company's Mumbai refinery will be commissioned by the end of 2025. The facility will have a capacity of 60 kilotonnes per annum – enough to meet the initial 1-2% blending requirement, he added.

HPCL's Certification Path

HPCL expects certification for its production process by the fourth quarter of 2026. "We have carried out a demonstration where we have used cooking oil and co-processed it with normal ATF. The project is ongoing," said Sibi Mathew T, HPCL's Executive Director (Aviation). Used cooking oil is a key feedstock for the co-processing route.

Why Viability Gap Funding Could Tip the Offtake Decision

Executives across the three OMCs are unified on the need for fiscal support. SAF's cost premium cannot be absorbed by airlines already operating on thin margins. Incentives such as viability gap funding or tax rebates would lower the cost of production for OMCs and allow them to pass on benefits to airlines. That would make offtake agreements more commercially viable.

The policy mechanism is still undefined. The Airline and oil company consultation, Dhar acknowledges, will be critical. Without a clear subsidy or tax credit, the effective cost of SAF will remain high enough to deter broad adoption even at a 1% blend.

Practical rule: The SAF premium is a function of blend percentage and the price differential between SAF and ATF. For a ₹100/kg ATF benchmark, a 3x SAF price means ₹300/kg. At a 1% blend, the effective increase is 2% of the ATF price – about ₹2/kg. Spread over a long-haul flight's fuel burn, that translates to the ₹100-200 range Farooqui cites. Track the SAF-to-ATF price spread monthly. If it narrows below 2x, the mandate becomes easier to absorb without subsidies.

Sector Readthrough: Refiners, Airlines, and Feedstock Chains

The SAF mandate creates a new demand stream for Indian refiners. The readthrough for the broader Indian oil and gas sector involves three layers:

Refinery investment: IOC, BPCL, and HPCL are committing capex to SAF production. IOC's Panipat unit is the most advanced. BPCL's Mumbai facility follows. HPCL is earliest stage.

Feedstock sourcing: Used cooking oil and agricultural waste are primary feedstocks. Companies with existing supply chains in biofuel feedstocks have a structural advantage. India's used cooking oil collection is fragmented, which could raise import dependence.

Offtake risk: Airlines' willingness to pay the premium depends on government mandates and the pass-through mechanism. If the fare impact stays at ₹100-200 per ticket, demand-side resistance should be minimal. Higher blends – 5% by 2030 – will test that tolerance.

The parallel with India's ethanol blending programme for road transport is useful. That programme required years of subsidies and production incentives before reaching meaningful volumes. SAF adoption will likely follow a similar path, though aviation's smaller fuel base means lower absolute investment needs.

Risks: Policy Timing, Feedstock Fragmentation, and Cost Escalation

Policy delay risk: The SAF policy is still under formulation. If the government delays notification or sets weak compliance requirements, OMCs may slow capital allocation to SAF projects. The current target covers only international flights. Domestic flights are excluded from the 2027 timeline, reducing the addressable market.

Execution risk: IOC's September 2025 start date is the most concrete milestone. BPCL has not disclosed a specific month for commissioning. HPCL's certification is not due until late 2026. Any slippage narrows the buffer for meeting the 2027 mandate.

Feedstock risk: Used cooking oil supply in India is fragmented and informal. Scaling up may require imports from Southeast Asia, which could raise costs and offset the benefit of fiscal incentives. The Indian Institute of Petroleum's demonstration used cooking oil, so the technology is proven. Commercial-scale reliability is unproven.

Cost escalation risk: The SAF price ratio of 3-5x ATF could widen further if global biofuel demand from Europe and Singapore increases competition for feedstocks. That would make even small blending targets more expensive without government support.

Risk to watch: If the government delays the policy framework beyond March 2026, the 2027 target becomes aspirational. OMCs may delay final investment decisions for new SAF capacity. The coordination between airlines and fuel suppliers – as Dhar acknowledged – requires the government consultation to resolve cost-sharing disputes.

What Confirms or Weakens the Setup

Bullish confirmation: The government publishes the SAF policy with clear mandates and announces a subsidy or tax credit for OMCs. IOC's Panipat unit hits its September 2025 start date. Airlines like Air India and Akasa Air sign binding offtake agreements at commercially viable prices.

Bearish signal: The policy is delayed beyond March 2026. BPCL's Mumbai facility commissioning slips into 2026. The global SAF price ratio widens to 6x or higher, making even small blends unviable without heavy subsidies.

The sector readthrough is most pronounced for IOC as the first mover with a firm production timeline. BPCL and HPCL follow with later-stage projects. The commodities analysis context is relevant – crude oil prices, ATF margins, and biofuel feedstock markets will all influence the economics of SAF. Traders should watch the feedstock cost trends and government fiscal announcements as the key leading indicators.

For a deeper look at how India's alternative fuel strategies compare, see our earlier piece on the India E100 Bet. That programme faced similar adoption hurdles tied to pump pricing rather than production. The SAF case shares the same structural question: whether the consumer will pay for a cleaner fuel when the mandate requires only a sliver of the blend.