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K.K. Jha, Director (Pipelines) , Indian Oil Corporation Limited (IOCL)

06 Sep 2011

IOCL is the country's largest public sector undertaking, owning and operating 10 of India's 20 refineries, with a network of 11,000 km of pipelines and having the largest share of downstream market of retailing of petroleum products. Not just that, IOCL is the second biggest player in the petrochemical sector.

The organisation has ambitious plans of enhancing its product pipeline capacity from the present level of 33 MMTPA to about 65 MMTPA by 2021-22. Jha, in an interaction with InfralineEnergy's Sangeeta Tanwar, emphasises that the transportation of petroleum, oil and lubricants (POL) through pipelines is the most economical, reliable and environment friendly means. He shares that despite heavy capital expenditure required, the pipeline division of IOCL does operate as a standalone profit centre. Jha talks about challenges of running a wide network of pipeline infrastructure. He also underlines the urgent need to further accelerate the reforms in land acquisition process for timely completion of pipeline projects.

Edited Excerpts

What are the opportunities that the pipeline business offers in the country?

In India, around, 45 percent of the country’s petroleum products, in terms of volume, are transported through the network of pipelines leaving huge potential for increasing pipeline share of transportation mode. Although road transportation is more expensive and less eco-friendly as compared to the pipelines, it is frequently resorted to because of the lack of adequate rail and pipeline infrastructure to every nook and corner of the country. Therefore, the need of the hour is to step up this percentage to the level of 70 to 75 percent at par with the European and United States norms due to definite inherent advantage of the pipelines mode of transportation over other modes.

The demand of white oil petroleum products in India is expected to reach around 240 million tonnes by 2022 at a CAGR of six to eight percent, of which, white oils and LPG will contribute a volume to the order of 208 MMT. Thus, the oil industry should work towards having a product pipeline capacity equivalent to at least 75 percent of the white oils volume that would translate into installed capacities of about 150 MMTPA in the next three to four years.

"The refinery capacity in the country is surplus, so any upcoming refinery in all likelihood has to be a coastal based refinery keeping in mind high dependence of the country on oil imports. In such a scenario, any upcoming refinery will be limited to areas wherever new oil field is found."

The country as of now has over 33,000 km of major crude oil, product and gas pipelines. Out of this entire network, the pipelines division of IndianOil owns and operates about 11,000 km of pipelines.

Going forward, what parts of the country will see expansion of crude oil and petroleum product pipeline infrastructure?

Construction and spread of crude oil pipelines are dictated by refinery locations. India imports crude oil to the tune of 80 percent. The refinery capacity in the country is surplus, so any upcoming refinery in all likelihood has to be a coastal based refinery keeping in mind high dependence of the country on oil imports. In such a scenario, any upcoming refinery will be limited to areas wherever new oil field is found. Also, most of the refineries in the country are landlocked. Wherever there is a brownfield expansion, there will arise opportunities for the growth of crude oil pipeline.

As far as growth prospects of petroleum product pipeline is concerned, IndianOil is already pursuing a number of petroleum product pipeline, varying concepts of multi-product pipelines, dedicated LPG and ATF pipeline.

What are the strategic advantages that refining companies enjoy with their own network of pipeline?

The biggest benefit is on the logistics front. The cost of transportation through pipelines is the most cost effective. We did a comparative study for our Chennai Trichy Madurai pipeline. The study revealed that if we had to transport our product through railways, it would cost two times more than the cost accrued through pipeline transportation. Similarly, the cost of transportation through roadways would be four times or more. So, transportation through pipeline brings in lot of cost optimisation. We benchmark our projects on 75 percent of notional rail fare. This means that the cost that we would have incurred through transportation of our products through railways is considered as our potential revenue.

" Safeguarding pipelines from pilferage is a big concern. Another big challenge is to successfully manage encroachments which take place in RoU (Right of User) in land. We have to make sure that no unwarranted damage to pipelines takes place, facilitating smooth passage for regular maintenance of pipelines."

Also, transportation through pipelines is a safer bet. Irrespective of inclement weather, the supplies are assured. Again, railways and roadways tend to have unnecessary movement towards empties adding to energy cost. Pipelines are environment friendly and do not obstruct movement. Large volumes can be transported through pipelines.

What are the challenges of running a comprehensive pipeline network across the country?

The biggest challenge while running a large pipeline network across the country is to ensure fail-safe operations of pipelines because the topmost priority here is to have assured delivery of on-specs products to the end user. In doing so, we also need to ensure continuous availability of pipelines system through proper upkeep of the equipment.

Safeguarding pipelines from pilferage is another concern. Another big challenge is to successfully manage encroachments which take place in RoU (Right of User) in land. We have to make sure that no unwarranted damage to pipelines takes place, facilitating smooth passage for regular maintenance of pipelines.

What policy changes are required to further boost pipeline infrastructure in the country?

A pipeline system has a declining long-term average cost curve which makes a pipeline system the ideal mode for transportation of high volumes over long leads. However, high initial costs of establishing a pipeline system prove to be a deterrent for potential players to make significant investments. The payback period is very high. To boost investment in pipeline infrastructure, we require policy changes that would incentivize investment in pipeline infrastructure coupled with tax incentives.

"We are in downstream business and the expected order of profits for the organisation has to come in the following order, marketing, refinery and pipeline business. Interestingly, last year, we had a profit of nearly Rs 7,400 crore and the contribution of pipeline business in it was about Rs 3,400 crore."

Another factor, which acts as a deterrent for pipeline infrastructures, is right-of-way (ROW) acquisition and delay in statutory clearances. With rapid urbanisation in the past decade, getting ROW for pipelines is becoming difficult. This becomes a major hurdle in timely implementation of the pipeline projects resulting in cost and time overrun in completing pipelines projects. A more nuanced policy framework aimed at removing these hurdles would certainly boost investment in the pipeline sector.

Is it right to say that pipelines are a natural monopoly given that a single seller owing to economies of scale acts as a barrier to entry for other players in a given geography?
As far as liquid pipeline cargo is considered, I don’t think it is a monopoly because this activity can be handled by any other alternative mode of transport. In case of gas pipeline, we can say that they are mutual monopolies because there is no other means of transporting gas. In the past one has experimented with options such as transporting liquefied natural gas (LNG) through caskets but huge volumes make this option impractical. And since huge investment is required in laying and building pipelines one can say that it’s a monopoly.
You took over as the Director (PL) of IOCL in August 2009. What were the opportunities and challenges that came along with the new responsibility?

At the time of my coming onboard IOCL as director pipelines, the major challenges that I faced included entry into gas transportation pipeline, expansion of existing pipeline network by taking-up projects in an assembly line manner, maintenance of existing pipeline systems given that some of the pipelines had been serving for more than 40 years.

Then there were other issues such as proactively curbing the increasing menace of pilferage in pipelines. And then there was the biggest challenge of developing skilled manpower since huge retirement across the board was looming large at that time.

What are the economics of operating a pipeline business? Does IOCL’s pipeline division operate as a profit centre?

We are in downstream business and the expected order of profits for the organisation has to come in the following order, marketing, refinery and pipeline business. Interestingly, last year, we had a profit of nearly Rs 7,400 crore and the contribution of pipeline business in it was about Rs 3,400 crore. However, these figures need to be viewed in the backdrop of huge burden that we have to bear owing to under-recoveries. Also, contribution from other department varies based on product prices and so on.

Pipeline business is capex intensive. The cost of laying an average 12 inch pipeline is anything between Rs 1 to 1.2 crore per km. The pipeline sizing is done based on expected volume spanning 25 years. Thus, one should have sufficient volume over a period of time to justify the investment made. In such cases, the payback period is quite short.

What are the measures undertaken by IOCL to check pilferage attempts on its pipeline network?

The pipelines division of IOCL has undertaken a slew of preventive measures to check the pilferage attempts. These measures can be broadly described as monitoring of operational parameters, Physical Monitoring of ROW, Villager Awareness Programme, Electronic Surveillance, Liaison with Government Authorities and Reward Scheme.

In accordance with monitoring operational parameters there is round the clock monitoring of pipeline flow and pressure through Supervisory Control and Data Acquisition System (SCADA) for all the pipelines. The monitoring of Leak Detection System (LDS) based on flow and pressure measurements indicates any major leakage or pilferage on the pipelines. As part of ROW, there is daily foot patrolling by Line Patrolmen (LPMs) and DGR guards covering eight km stretch per day, night patrolling (with armed guards) to identify vulnerable stretches of pipeline ROW as well as road crossings. We also check and verify any abnormality along the ROW. Then through measures such as Villager Awareness Programme, we continuously interact and sensitise villagers by conducting awareness programmes by organising free medical check-up camps, tree plantation drives in villages, intensive community development programmes along pipeline ROW. Electronic Surveillance involves continuous monitoring of Repeater cum Cathodic Protection System (RCP’s) through CCTV based surveillance system. We have also undertaken trial for monitoring movement of line patrolmen/night guards through Global Positioning System, which is now under implementation.

"About 40 percent of India’s petroleum product consumption is taking place in north and north-west of India. Gujarat, Rajasthan, Haryana and Punjab are the big markets and accordingly, enjoy highest proliferation of pipeline infrastructure."

We regularly liaison with various government authorities to address issues of pilferage. Oil security coordination committees have been formed in states of Gujarat and Rajasthan, where security measures are reviewed in detail in quarterly and half yearly meetings. Similarly, in states such as Haryana and Rajasthan, one police officer in every district has been appointed as a nodal officer to help IOC with patrolling of mainline ROW. Moreover to encourage timely detection of pilferage, IOC has a reward scheme in place for rewarding people who give first hand information regarding pilferage attempts on pipeline.

What is the mechanism and criteria involved in the route selection of new pipelines. What are the challenges involved in the entire exercise?
To begin with we initiate the desk top survey of the route for the proposed pipeline. Thereafter, a recce is undertaken, which is followed with detailed engineering survey of the entire proposed route of the new pipeline. While selecting the route of the pipeline, it is ensured that the route is away from habitants, minimally traverses through forest, and avoids crossing water bodies and eco-sensitive areas to the extent possible. However, at the same time, we ensure that the pipeline envisaged maintains its economics by opting for the shortest possible route from origination to the end destination.
How are pipeline projects monitored under the best management practices by IOCL? What is the mechanism followed for benchmarking pipelines as a mega projects?

Pipeline projects costing more than Rs 150 crore are considered as mega projects as per the guidelines of Ministry of Statistics and Programme Implementation, Government of India (GoI).

In IOCL pipelines, we have a well defined methodology of monitoring the projects at each level including apex level and board. For example, once the project is approved for execution, a detailed project execution plan is prepared in consultation with all concerned parties and stakeholders through PRIMAVERA project management tool. There are defined periodical reviews of the project on daily basis, weekly basis, and monthly basis by apex level as well by board followed with quarterly review by Ministry of Petroleum and Natural Gas. Also, various remedial measures and mid course correction are incorporated as and when required to ensure that projects remain on tract.

How important a role does information technology plays in optimising the process of transportation and distribution through pipelines?
When it comes to pipeline business and IOCL’s own operations - information technology (IT) plays a major role in optimising the process of transportation and distribution of POL through pipelines. We are able to maximise optimisation of equipment running through various combinations of operations guided by IT enabled system at central dispatch system at the master station of each of the pipelines. IT enabled leak detection system are installed in all the pipelines to generate signals and shutdown the operation in case of any leak in the pipeline system. Even remote monitoring of the pipeline operation is being done through IT enabled services like SCADA.
The pipeline network of IOCL is less prominent in Central India. What are the reasons for underdeveloped pipelines in Central India and its impact on transportation economics of petroleum products in the region?

We need to look at the issue from consumption pattern of petroleum products in India. About 40 percent of India’s petroleum product consumption is taking place in north and north-west of India. Gujarat, Rajasthan, Haryana and Punjab are the big markets and accordingly, enjoy highest proliferation of pipeline infrastructure. Next in line is the eastern sector and some part of Uttar Pradesh followed by the south.

IndianOil, so far, had only one refinery at Vadodara catering to Central India. With the limited availability of product at this refinery, it did not make economic sense for us to invest in new pipelines in this region. However, over the past eight years, IndianOil has taken positive steps to strengthen its pipeline network in Central India. We commissioned the 265 km long Koyali-Ratlam pipeline in 2009, which has helped us improve logistics in Madhya Pradesh. IndianOil is also implementing Paradip-Sambalpur-Raipur-Ranchi pipeline, linking important states including Chhattisgarh, Orissa and Jharkhand to its upcoming Paradip refinery. At the same time, the company is also examining extending its other pipelines to various others important consumption centres in Central India, which would help the organisation in improving its supply chain and prune logistics cost.

There is a difference of 10-20 percent in physical progress schedule as against internal target in case of IOCL’s upcoming pipelines including Paradip-Raipur-Ranchi Pipeline (PRRPL) and Paradip-Haldia-Durgapur LPG pipeline. What are the apparent reasons for this delay and what is going to be the net impact of delay in commissioning of various pipeline projects on IOCL’s overall business?

There is a difference of approximately 15 percent in actual physical progress vis-a-vis scheduled physical progress in case of PRRPL.

About 102 Ha. of forest (71 Ha. in Orissa, 24 Ha. in Jharkhand and about seven Ha. in Chattisgarh) falls enroute where the pipeline is passing through. Ministry of Environment and Forests (MoE&F), GoI has issued an amendment in FCA-1980 vide circular dated July 30, 2009 making it mandatory to conduct gram sabha to obtain certificates under FRA wherever the pipeline is passing through forest area in tribal land. This is resulting in abnormal delay in obtaining forest clearance in 17 divisions comprising of 160 villages in Orissa, four divisions comprising of 18 villages in Chattisgarh and three divisions comprising of 18 villages in Jharkhand. As per MoE&F, GoI’s latest circular dated March 21, 2011, the project execution work cannot be started in non-forest area even in the districts which have some forest land. This matter was taken by IOCL with MoP&NG, Government of Odisha and also with PNGRB for seeking their assistance in getting exemption for laying of pipeline from the provisions of circular dated July 30, 2009 and March 21, 2011from MoE&F/Ministry of Tribal Affairs, GoI. So, we believe that the concerned authorities are looking into the matter. However, the project for laying Paradip-Haldia-Durgapur LPG pipeline has been approved by the regulatory board in February 2011 and the project is on track as of now.

As far as delay in other projects is concerned, those will directly affect our savings. For example, we laid a Chennai Bangalore pipeline. At Bangalore, we were already moving our products through railways. It was costing us roughly around Rs 60 to 70 crore per annum. We were supposed to commission the project on July 10 last year. However, with timely project completion, we were in a position to commission the same project by March that very year. Now you would take that as saving because had there been any delay in the project, the transportation cost would have been the additional cost for us. At the same time, in the long run, the internal rate of return (IRR) due to delay in project completion would be insignificant and it would be only for that particular year that the IRR would be high.

What are the steps being taken by IOCL for upgrading the pipelines to transport higher quality products - the Euro IV grade fuels from refineries to marketing centres?

Pipeline system design for our pipelines, which has been commissioned in recent times, has been designed for transportation of Euro IV grade fuels. At the same time, steps for installation of sulphur analyser, changes in operation philosophy and product sequencing are progressively being implemented in existing pipelines. In addition, linked facilities like dedicated lines for pipeline compatible kerosene (PCK), increasing tankage-segregating tankages for facilitating transportation of higher quality products is also being carried out. All new pipeline ToPs are provided with Transmix tank to ensure better interface management and handling.

"By 2013-14, we plan to add another 3,000 km to our existing pipeline network. We have planned investments worth Rs 7,000 crore to further spread and expand our pipeline network."

While upgrading our pipeline to EURO IV norms, we have not made any concentrated investments, but undertaken the exercise in phases. In the same pipeline, we are pumping all the products namely HSD, MS kerosene and ATF. With various products in the same pipeline some mixing is inevitable. We upgrade our specification at refinery location and thus the mixing does not have any impact on the product that is delivered. What we call PCK is injected between two batches to ensure that our final product remains EURO IV compatible.

IOCL has plans of establishing pipeline infrastructure for transportation of natural gas. What are the dynamics of constructing-operating pipelines for transportation of natural gas vis-a-vis operating crude and products pipeline distribution infrastructure?

IOCL has been awarded LOA for laying three gas pipelines namely Mallvaram-Bhilwara, Mehsana-Bhatinda and Bhatinda-Jammu-Srinagar pipelines in consortium with Gujarat State Petronet Limited (GSPL). In all these projects, GSPL is the lead partner with 52 percent stake. The deadline for completing these projects is July 17, 2014.

Crude pipelines are very large diameter pipeline, required for high energy transmission needs. Crude pipelines are cross country pipelines and are not limited to one geographical area. City Gas Distribution (CGD) pipelines are restricted to a limited geographical area. Then there are fundamental differences in designing of the pipeline itself with different codes for designing liquid pipeline and gas pipeline. The liquid pipelines are designed as per ANSI 34.5 and gas pipelines are designed as per ANSI 37.8. Unless until any liquid gas pipeline is designed as gas pipeline. It cannot be utilised for CGD. There are different prime movers for both the pipelines. Both require different sets of equipment for operations. Liquid pipeline features pumps, whereas gas pipeline spots a compressor.

What is the investment planned by IOCL for expanding its existing pipeline network?

By 2013-14, we plan to add another 3,000 km to our existing pipeline network. We have planned investments worth Rs 7,000 crore to further spread and expand our pipeline network. The investment will be spread out over four years.

As of now, IndianOil has already approved two proposals including 114 km long product pipeline from CPCL’s Cauvery Basin Refinery to Trichy and 710 km long Paradip-Haldia-Budge Budge-Kalyani-Durgapur LPG pipeline. These projects are under implementation.

The other proposals including the 295 km Sanganer-Bijwasan Naphtha pipeline, augmentation of the Paradip-Haldia-Barauni pipeline with additional tanks at Paradip and 270 km branch pipeline from Patna to Motihari and Baitalpur are also under various stage of evaluation. These projects would be financed through internal resources and commercial borrowings.

What are the steps being taken up by IOCL to further diversify and tap the growth potential of pipeline business in the country?

With an eye on growth, we are keen to diversify and thus looking at all spheres of pipeline business.

Though initially the focus of IndianOil was on liquid petroleum pipelines only, over the past five years, the company diversified into LPG pipelines and gas pipelines. IOCL has been successfully operating its first LPG pipeline - Panipat-Jalandhar LPG pipeline since 2008. Another 710 km long Paradip-Haldia-Durgapur LPG pipeline is under implementation. We commissioned our first gas pipeline, the 132 km long Dadri-Panipat R-LNG pipeline in 2010. We are also in the process of examining various other LPG pipeline proposals.

IndianOil is already operating CGD at Lucknow and Agra in partnership with GAIL. It has various JVs with entities like GSPC, Adani with an aim to expand its gas pipeline, CGD business.

As part of the expansion plan what are the key pipeline projects being planned and undertaken by IndianOil?

IndianOil is already implementing several pipeline proposals (new/augmentation) such as Transfer PL from North Oil Jetty to PHBPL, Paradip , Augmentation of CTMPL, Hook up of Tikrikalan Terminal with MJPL, Augmentation of Chennai-Bangalore Pipeline, Additional Tanks and blending facility at Vadinar, Branch PL from Viramgam to Kandla of KSPL, Integrated Crude Handling Facilities at Paradip, Paradip- Raipur-Ranchi Pipeline, Kolkata ATF Pipeline, Guwahati ATF Pipeline, De-Bottlenecking of SMPL, Replacement of old MLPUs in SMPL, Cauvery Basin Refinery-Trichy Pipeline and Paradip-Haldia-Durgapur LPG Pipeline.

These projects will increase IndianOil’s pipeline network by another 3000 km. The capacity addition would be about 15 MMTPA. Most of these pipelines are set to be completed in the next two years except the Paradip-Haldia-Durgapur LPG pipeline which will be completed by 2014.

How can we move towards having a Pipeline Integrity Management System in place to safeguard against integrity threats? Can existing US model serve as an example for putting up a similar system in place in India?

Oil and gas pipelines are the safest mode of transportation of hydrocarbons due to their inherent design feature. These pipelines are designed and built as per stringent standards and codes of practice.

IOCL is already following a very robust Pipeline Integrity Management System. The pipelines are provided with high performance external coatings for protection against external corrosion. The integrity of the external coating is also inspected before lowering the pipeline into the trench. The pipelines are then tested by subjecting them to mandatory hydrostatic tests.

The global trend is to equip the pipelines with dedicated communication system through OFC and SCADA i.e. supervisory control and data acquisition facilities for monitoring and control of pipeline operation round the clock from a central location. Leak detection system is also installed for quick identification of the location and for estimating the quantity of leak.

Pipeline operators conduct CAT, DCVG surveys to test the coating performance and CIPS surveys to test cathodic protection system efficacy at predetermined intervals. Based on these survey results, suitable rectification measures are taken up to repair and refurbish damage to the external coating wherever identified.

Pipeline operators use tools called pigs to clean pipelines. Intelligent pigs are sophisticated tools that scan the entire pipe wall for the entire length of the pipeline and store the data onboard. Once retrieved at the other end, this stored data is analysed based on sophisticated algorithms and compared with signatures to prepare a report on the health of the pipeline.

IOCL’s Pipeline Integrity Management System is more or less at par with practices of global majors.

(InfralineEnergy thanks K.K. Jha, Director (Pipelines), IOCL for sharing his valuable insights with our readers. The column In Conversation is a platform to engage experts from various sectors to share their views on the different transformations in the Indian energy sector.)