New pipeline sits idle as refiners argue about cost

Vol 7, PW 4 (07 May 03) Midstream & Downstream

SHARP DISAGREEMENT between Hindustan Petroleum and its two peers in the refining sector Indian Oil and Bharat Petroleum is forcing a new pipeline in southern India to sit idle instead of carrying oil products.

Argument centres on the start-up cost ofpumping first products through a 362-km pipeline from Mangalore to Bangalore, promoted by Petronet-India and with Hindustan Petroleum as the dominant shareholder with 26%. Neither HPCL, BPCL or IOC want to be the first to pump products into the pipeline because it will cost Rs160cr ($33m) to ship them from one end to the other of the pipeline to get it operational.

The amount may seem small for cash-rich state oil companies to argue over but after the domestic oil sector was freed last year every rupee counts. HPCL argues that the three refiners should split this bill equally but IOC and BPCL disagree.

According to IOC and BPCL, Hindustan Petroleum should bear the burden of the "line fill" alone. IOC says it was the first to pump products into the Vadinar-Kandla pipeline in Gujarat and was happy to pay the full cost while BPCL says it was the first to pump products into the Kochi-Coimbatore-Karur pipeline and was also happy to pay the full cost.

But for HPCL, there's a vital difference: proportionally the cost of "locked in" products is lower in the other two pipelines. IOC paid only Rs40cr to pump first products through the 24-inch, 100 km Vadinar-Kandla pipeline and BPCL paid only Rs80cr to pump first products into the Kochi-Karur line.

Contrast that with the Rs160cr HPCL would have to pay for the much longer Mangalore to Bangalore line. "This dispute will have to be taken up at the level of the marketing directors of each company," reveals a source.

"Staff lower down can't agree among themselves."