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Transport subsidy for N-E refineries -- Will it flow after APM dismantling?

Santanu Sanyal

THE Petroleum Ministry is understood to have sought the Finance Ministrys approval for continuation of the transport subsidy for the refineries located in the North-East even after the dismantling of the administered pricing mechanism (APM) next April.

Initially, the proposal was for Numaligarh Refinery Limited (NRL) and Digboi refinery of the Assam Oil Division (AOD) of Indian Oil Corporation (IOC).

Subsequently, two other refineries Guwahati refinery and the Bongaigaon Refinery and Petrochemicals Limited (BRPL), both under IOC too were included.

At present, these four refineries of the North-East together account for a substantial amount of transport subsidy. According to one estimate, the subsidy amount will be Rs 800-900 crore annually. The transport subsidy is provided for reaching petroleum products outside the 50 km limit of the production centre. As these refineries market the bulk of their production outside the 50-km limit, they receive hefty amounts as transport subsidy.

But, then, the refineries in the North-East have no choice. For various reasons, they face, in varying degrees, the problem of evacuating their products. The four refineries together have a total capacity of about seven million tonnes annually whereas the total demand for petroleum products in the entire North-East does not exceed two million tonnes annually.

(The level of consumption in the North-East can be known from one example. The three retail outlets of AOD in Haryana sell more petroleum products than what Manipur, Mizoram and Nagaland together do, through the 50 retail outlets.)

Which means, if the refineries run to their capacity, about five million tonnes of petroleum products have to be evacuated outside the North-East involving large-scale transportation and therefore a huge subsidy. Fortunately, none of the refineries in the region (except perhaps the Digboi refinery) operates close to capacity because of non-availability of crude. The total production of crude in North-East oilfields, both under Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), is about five million tonnes while the requirement of the refineries is about seven million tonnes.

The North-East, thus, is an interesting scene. If the refineries run to their capacities, two million tonnes of crude have to be brought from outside (mainly imports) and five million tonnes of products have to be evacuated out of the region. Transportation, therefore, plays a key role. But, then, as everyone knows, the transportation in the North-East, for various reasons, leaves much to be desired.

The problem is particularly critical for NRL. Even at 60 per cent capacity utilisation, the refinery finds it hard to evacuate its products. The bulk of its production is sold outside the region.

At one time, there was talk of exporting about a half a million tonnes of the production to Bangladesh, mainly by the river route. That did not happen, for whatever reason. The export prospect to Bangladesh seems remote now, particularly with the change of government in that country. However, Dhaka allows movement of Indian vessels through Bangladesh waters for carrying cargo between Assam and West Bengal.

In view of all this, there is now a proposal to lay a product pipeline from NRL to Siliguri (West Bengal) and, if necessary, to extend it further north. The existing product pipeline between Siliguri and Guwahati cannot be extended to NRL because of its limited throughput capacity.

Then, there is yet another plan to lay a product pipeline network from Digboi refinery to North Lakhimpur on the other side of the Brahmaputra, covering over 200 km.

The pipeline is to be laid along the huge 17-km rail-cum-road bridge proposed to be constructed across the Brahmaputra to connect Dibrugarh with the north bank of the river. However, the Railways is opposed to laying the pipeline arguing that once the bridge is ready, the traffic could be handled by them.

There is yet another problem. The effective demand for petroleum products in the north bank is small. But, according to AOD sources, easier communications with the north bank will help it penetrate the Arunachal Pradesh market more intensely. AODs anxiety to serve Arunachal Pradesh better is understandable. The Kharsang oilfield in Arunachal Pradesh, run jointly by OIL and a private firm, meets a portion of the crude requirement of the Digboi refinery.

These are long-term solutions. Unfortunately, the short-term measures do not always yield result.

For example, AOD has opened a depot at Malbazar in the Dooars region of West Bengal to boost sale of petroleum products, mainly furnace oil.

True, the sale of furnace oil in the region, particularly to the tea gardens, has increased with the opening of the depot. But at what cost?

The company has been forced to sell the product at a lower price to match the competition from imports. What is hurting the company most is that furnace oil, being a deregulated item, its sale outside the limit of 50 km does not attract transport subsidy.

BRPL does not have a marketing network of its own; it depends on IOC or other marketing companies for selling its products. The Guwahati refinery again is believed to be facing problems evacuating light diesel oil (LDO) which has no demand in the North-East.

AOD, which runs five retail outlets outside the North-East (three in Haryana and one each at Orissa and Bihar) plans to open by 2002-03 as many as 34 additional retail outlets outside the region Bihar (nine), West Bengal (eight), Orissa (six), Haryana and Jharkhand (three each), Rajasthan (two) and Delhi, Himachal and Punjab (one each).

Since AOD is now part of IOC, the hospitality arrangement with IOCs installations in these States will help it meet the requirements of products.

However, such an arrangement alone may not be enough to meet the post-APM challenges, hence the Petroleum Ministrys appeal for continuation of the transport subsidy for the North-East refineries even after April 2002.

 
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