IOC objects to pipeline tariff for MHB pipeline

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

DISAGREEMENT OVER who picks up the cost of the "line fill" is not the only dispute that prevents the Mangalore to Bangalore pipeline becoming operational.

Equally damaging is a row over the tariff that operator Petronet MHB wants to charge: Rs660 per tonne for diesel and Rs700 per tonne for petrol. IOC is unwilling to pay these rates and wants a 20% reduction.

Neither BPCL nor HPCL object to this tariff. "IOC is unwilling to listen.

They say they can bring in products from Chennai Refinery into Bangalore by rail cheaper," says a source. Petronet feels IOC is bluffing.

"We know IOC's position is illogical. Our calculations show that transporting products from Mangalore to Bangalore by pipeline is cheaper by Rs300 per tonne compared with transporting by rail from Chennai." One insider tells PETROWATCH that IOC is "being a big bully just because it controls 50% of the market." Here too, no solution is in sight.

Keeping the pipeline non-operational is expensive and taking a toll on its financial health. "Even though there is no income, the interest cost alone works out to Rs5cr per month." Another worry: the pipeline's operational capacity is 5.6m t/y but expected to carry no more than 2m t/y products thanks to tough competition from the railways, which have reduced freight rates by 10%, and oil minister Ram Naik's ethanol-petrol blending project.

"Because of lower throughput, there will be cash deficits for the first five or seven years. No wonder investment bank IDFC is having second thoughts about buying a 20% equity stake in the venture.

"IDFC wants a comfort letter regarding throughput," reveals a source. "Only then is it prepared to invest."