Indian Oil Corporation (IOC) is targeting to more than double its pipeline network in the country by 2021-22 at a cost of about Rs 32,000 crore, identifying the low-profile segment as a robust profit stream. As part of this, the state-run oil marketer is expanding its pipeline network from 11,221 km now to 17,000 km by 2017, at a cost of Rs 12,000 crore, a director on the board of the PSU told FE. The network would be further expanded to 26,000 km by 2021-22, with an additional Rs 20,000 crore investment, he added.
Pipelines are the most cost-effective way to transport petroleum products, besides being safe and environment-friendly. The cost of transportation of via existing petroleum pipelines is around 54 paise per tonne per km, while road freight (for two-way movement) is around Rs 5 per tonne per km.
“IOC has an unparalleled network of cross-country pipelines — 11,000 km long with 80 million tonnes carriage capacity. The pipeline business has a superior and stable annuity cash flow profile and generates superior returns. Pipelines contributed 38% to the FY15 Ebitda (earnings before interest, taxes, depreciation, and amortisation) with low capital employed,” Edelweiss Securities noted in a recent report.
The pipeline network works as a captive system of the firm. IOC maintains storage facilities at its depots across the length and breadth of India for storage and distribution. To evacuate products from refineries and to transport them to its marketing depots, IOC owns and operates the petroleum pipelines, which, it believes, are for its exclusive use.
Although no separate revenue stream can be attributed to captive pipeline networks, IOC internally keeps a system where every department books margins on the supplies from upstream ones. For instance, IOC calculates the pipeline freight at around 75% of railway freight, which works out to Rs 1.50 per tonne. This is revised as and when the railways increases the fare.
In the first six months of FY16, IOC has made capital expenditure to the tune of Rs 5,800 crore against the budgeted estimate of Rs 5,200 crore, company chairman B Ashok said on Tuesday. In the complete fiscal, IOC has lined up capex of Rs 10,540 crore. Ashok said that the firm would “comfortably” exceed this capex programme, as it is spending in slew of pipelines and an LNG terminal.
Some of the pipelines to be completed by 2016-17 include Paradip-Raipur-Ranchi (1,067 km); Paradip-Haldia-Durgapur LPG pipeline (670 km) and Ennore-Trichy-Madurai (675 km), among others.