Initiating energy trade with neighbours is a welcome step. But has India done enough home-work to ensure that the recent supply diesel to Bangladesh is sustainable?
On March 17, Union Petroleum Minister Dharmendra Pradhan flagged off a train load of 2,200 tonnes of Euro-III diesel from the West Bengal border town of Siliguri.
The oil was pumped from the 3 million tonne per annum (mtpa) Numaligarh Refinery Ltd (NRL), located 650 km north-east, in Assam, by pipeline to Siliguri.
The train first went 260 km south to Malda before covering another 250 km to reach Parbatipur in Dinajpur district of north Bangladesh, where a senior Bangladeshi Minister received the “goodwill rake” a day later, with much fanfare.
The enthusiasm on the Bangladesh side is understandable. The country currently imports petroleum products through the Chittagong seaport in the south.
In the absence of pipeline infrastructure in Bangladesh, the diesel is transported by a combination of river and road transport to the consumption centres in the north at $10 a barrel above the FOB (free on board) price.
NRL matched the landed cost of fuel in the north and saved Bangladesh the hassle of transporting it from the south.
Last year, India and Bangladesh signed a preliminary agreement for a long-term deal. The deal rests on two factors — the proposed expansion of NRL from 3 mtpa to 9 mtpa and the construction of a 135-km ‘friendship pipeline’ of 1 mtpa capacity from Siliguri to Parbatipur by NRL and Bangladesh Petroleum Corporation (BPC).
Ideally, this should help NRL achieve economy of scale and reduce the landed cost of fuel in Bangladesh, making it a win-win deal.
A press release from the Centre didn’t give any projections on future rail consignments but hinted that the exercise may be repeated in the intermittent period.
“Once the NRL refinery expansion is complete, India will be in a position to export petroleum products on a regular and long-term basis. Prior to… (that) rail is an effective mode of transport with minimum loss and pollution,” the release said.
Right candidate
With 160 mt annual consumption against a refining capacity of nearly 220 mt, India is an exporter of refined products, and it makes economic sense to tap the markets next door. But is NRL the right candidate for it? The refinery is now running at less than 80 per cent capacity owing to dwindling crude production in Assam.
With no upside visible in crude production in the North-East, the capacity expansion project should bank on pumping imported crude all the way from Paradip port in Odisha, some 1,600 km from Numaligarh by road.
It means a good part of the proposed ?21,000-crore NRL expansion project will be spent in laying pipelines that will first take crude 1,600 km north and bring products 650 km south, either for another 135-km pipeline travel or over 500-km rail to Bangladesh.
The IOC alternative
There is an alternative. IndianOil’s 15 mtpa Paradip refinery will start producing at full scale in two months.
It will create redundancy at the company’s (also port-based) Haldia refinery in Bengal. The excess capacity can be used for rail or river based supplies to Bangladesh. Considering IOC’s extensive product pipeline network, probably it wouldn’t be difficult to engage it in pipeline transfer too. Whatever the possibilities, the decision-making should essentially be a business decision. But available information suggests it is far from a business decision.
And that created the next set of the problems.
The NRL expansion proposal is unusually costly and the Centre is yet to approve it. To make it viable, it has to grant huge capital subsidies (nearly half the project cost), most of which will be spent in laying those pipelines.
That’s not all. North-East refineries enjoy 50 per cent excise benefit on domestic sales. It means NRL will lose profit opportunity on every consignment of diesel exported to Bangladesh.
Of course, a subsidy deal can make it profitable. But who will gain from that? Is a modern day refinery — that can be run by 100-odd people — connected by underground pipelines an employment generating exercise?
Or, can the subsidy amount be better spent in revamping the dilapidated highway infrastructure in Assam?
Source :.thehindubusinessline.com
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