Why IOC and BPCL reject GAIL's argument on LPG

Vol 7, PW 1 (26 Mar 03) People & Policy

NEITHER IOC nor BPCL want to sign the TSAs on GAIL's terms.

"GAIL wants us to sign a take-or-pay agreement," reveals a source. "How do we do that when we do not have product security at Vizag" Unlike HPCL, IOC or BPCL don't have a refinery there.

HPCL is also constructing a storage facility for imported LPG at Vizag with TotalFinaElf. "Even if I import LPG at Vizag, the price should be competitive.

Ocean freight rates for imported LPG to the east coast are more than to the west coast." Imported LPG at Mumbai is cheaper than at Vizag. "For imported LPG at Vizag we would have to pay terminalling charges of Rs800 per tonne to HPCL." Worryingly for GAIL, the cost of moving LPG by rail from Mumbai to Vizag is cheaper by Rs900 per tonne.

Says a BPCL source: "We have written to GAIL setting out all this and telling them we are willing to sign the TSA minus the take-or-pay clause and provided that the LPG price (at Vizag) is as competitive as at Bombay. GAIL has not responded and is trying to bring pressure on us.

None of that pressure will work." Adds another source: "We are not here to support GAIL's balance sheet. Neither are we in the business of charity." Today IOC and BPCL transport LPG from the west coast east by road.

But road transport is costly and BPCL is setting up a LPG railway terminal near Secunderabad to transport LPG by rail from Mumbai. "Transporting LPG by rail from Bombay to Secunderabad is cheaper than using the GAIL option.

In Bombay, we have our own refinery and storage tanks and don't have to pay terminalling charges. The only additional cost is rail tariff."