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A line of dispute

Gail opposition stalls IOC plan to lay parallel pipeline to transport LPG

Public sector majors Indian Oil Corporation (IOC) and Gail India are in a protracted tussle over the oil refiner?s plan to build a gas pipeline between Kandla and Panipat. The pipeline would help IOC to significantly reduce its LPG transportation costs for refineries like Mathura, Panipat and Koyali. IOC has approached the downstream regulator, PNGRB, for authorisation to lay the pipeline. But its proposal has been strongly opposed by Gail India, whose Jamnagar-Loni pipeline is currently being used by IOC to transport LPG from these refineries. The matter has been pending with PNGRB for over a year without any resolution in sight.

Gail has submitted before the regulator that IOC?s proposed pipeline will be a duplication of work and also go against the spirit of the regulator?s common carrier principle, a concept that mandates reserving a certain part of the pipeline capacity for use by third parties by the pipeline operator.

IOC, which transports LPG using the Jamnagar-Loni pipeline, finds it non-remunerative to use the pipeline and wants to build a parallel pipeline between Kandla in Gujarat to Panipat in Haryana. Also, the oil retailer is now forced to transport some of the additional LPG, for which it wants to lay the new pipeline, through freight and tankers.

Gail has disputed the construction of the new pipeline, claiming that a new pipeline on a similar route makes no commercial sense, and offered to expand the pipeline?s capacity to meet IOC?s additional requirements.

Both sides are unwilling to back down and are awaiting a judgment from the Petroleum and Natural Gas Regulatory Board (PNGRB).

Currently oil marketing companies, IOC, BPCL and HPCL share the 1,415-km pipeline that is operated on a common carrier basis to transport LPG from refineries to their bottling plants along the route. Since 2001, the Jamnagar-Loni pipeline, constructed with an investment of R1,250 crore, has been serving several LPG bottling plants en route such as Ajmer and Jaipur (Rajasthan), Pilayi (Haryana), Madanpur Khader (Delhi) and Loni (Uttar Pradesh).

IOC has proposed setting up its own alternative 3.7 million tonnes per annum (mtpa) LPG pipeline at an investment of R2,000 crore. Its three major refineries at Mathura, Panipat and Koyali will be linked with the proposed pipeline. ?Due to the high costs involved with transporting the gas through the Jamnagar-Loni pipeline and the growing demand for LPG across our bottling plants, we want to scrap our common carrier deal with Gail and set up our own pipeline,? said a senior IOC official.

The proposed pipeline also envisages two branch lines?Kandla-Sanand-Koyali-Bhopal and Rewari-Mathura for better logistics and allows IOC to substitute road tran- sportation of LPG, the official said.

Gail on its part states that they are willing to expand the capacity of the existing Jamnagar-Loni pipeline from 2.5 mtpa to 4.5 in order to accommodate IOC?s increased needs. ?Gail has already made significant investments on the pipeline. It will affect our revenues and pipeline utilisation if IOC pulls out?, the Gail official said.

IOC officials claim that the tariff on the pipeline is equivalent to the freight charges, which stands at around R164 per tonne. ?On the other hand, if we lay our own pipeline our costs will be lower as the freight charges we are currently paying Gail are three-four times of the operating costs of running a pipeline. We can recoup our capital investments of R2,000 crore in about five years, following which our internal rate of returns will be much better,? said the IOC official.

Gail owns and operates two LPG pipeline transmission systems with a total length of 2,038 km. Out of this, 1,415 km of pipeline network transports LPG from the western to the northern parts of India (Jamnagar?Loni) and the balance 623 km of network transports LPG in the southern part (Vizag-Secunderabad pipeline). The transmission system has a capacity to transport up to 3.8 mtpa of LPG. In 2012-13, the LPG transmission throughput achieved was about 3.136 mt.

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First published on: 25-09-2013 at 02:13 IST
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