OMCs plan LPG pipeline worth Rs5,000 crore to support Ujjwala scheme

Mumbai: To meet the increasing demand for cooking gas or liquefied petroleum gas (LPG) in the country, the three oil marketing companies (OMCs)—Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—are planning to set up a 1,450-kilometre pipeline to service central India, said three officials aware of the discussion.

The pipeline would emerge at Kandla port or Mundra port, both in Gujarat, and will run via Bhopal, Kanpur and Lucknow to terminate at Gorakhpur in Uttar Pradesh.

The total cost of the pipeline would be around Rs.5,000 crore and the pipeline would be set up under a joint venture in the next 3-4 years, said the people quoted above, on the condition of anonymity.

“We have begun preliminary discussions on this proposal. Details of equity participation and commercial structure are yet to be worked out. We have chosen this pipeline route as many below poverty line (BPL) families live in the Central India belt. This pipeline fits well with meeting demand that would emerge from government’s Ujjwala scheme,” said one of the people quoted above, who is a director at one of the oil marketing companies. He requested anonymity as he is not authorized to speak to the media.

The pipeline would be important from an infrastructure development standpoint as most of the LPG in the country is transported through road which not only makes it expensive but also unsafe.

Demand for LPG in March reached a record high of 1.835 million metric tonnes (mmt), up 14.16% year-on-year, driven by the government’s push to increase LPG penetration in rural households.

Last month, the government approved the Pradhan Mantri Ujjwala Yojana to provide free LPG connections to women from BPL households. Under the scheme, Rs.8,000 crore has been earmarked for providing 50 million LPG connections to poor households. Eligible households will be identified in consultation with state governments and Union Territories. The scheme will be implemented over the next three years.

“The proposed pipeline would see 2.5-3 million tonnes per annum of imported LPG. It will help us meet demand in low LPG penetration areas such as Meghalaya, Assam, Jharkhand and Bihar, among others,” said the second person quoted above, who is a senior official at HPCL.

Indian oil marketing companies produce as well as import LPG to meet local demand.

“LPG has broadly two cost elements: security deposit and cost of stove/connection which together is around Rs.3,500 apart from recurring cylinder cost that a family has to incur. This makes LPG affordability in rural areas difficult. Besides, reach of LPG is poor in many areas and transporting the fuel in many terrains is difficult. Pipelines thus become important,” said Saurabh Kamdar, director, CRISIL Infrastructure Advisory.

OMCs are also planning to invest to create LPG import facilities and additional bottling plans.

HPCL will spend a total of Rs.1,500 crore in setting up an LPG import facility and another 7-10 bottling units, said the HPCL official quoted above. HPCL is scouting for land to build a new LPG bottling plant of 60 million tonnes per annum (mtpa), he added.

Meanwhile, BPCL is building an LPG import terminal at West Bengal’s Haldia, for Rs.800 crore. The company has acquired 35 acres for the purpose and plans to complete the project in three years.

“We have prominent presence in the western and southern regions but not the eastern region. Bihar, Northeast, Jharkhand, eastern Uttar Pradesh and West Bengal are where we need to build a market. Our import terminal at Haldia will help us meet demand in the eastern region,” said a BPCL official, one of the three people quoted above.

IOCL is already constructing an LPG import facility of 600,000 tonnes per annum at Paradip, Odisha, for Rs.690 crore. In January 2015, it decided to invest Rs.5,300 crore for the facility and for laying pipelines.