MAY 23 2018

PROJECT REPORT
PARADIP-HYDERABAD PIPELINE PROJECT

AYAN SINGH
CHRIST UNIVERSITY, BENGALURU
TABLE OF CONTENTS

S.No Particulars Page Number

1. Certificate 4

2. Acknowledgement 5

3. Executive Summary 6

4. The Industry 7

5. Company Overview 8-15

(About the Company) 8

(Company’s Vision) 8
9
(Projects Division)
9
(Products & Services) 9

(Operational Performance)
9-10
(SWOT Analysis)
11
(Competitors) 12

(Indian Oil’s Performance in Downstream Oil Sector) 13

(Board Structure & Shareholding Pattern) 14-15

6. Pipelines Division 16-19

(Introduction) 16
17
(Development of Pipelines in India)

(Pipelines in Indian Oil) 17-18

(Merits & Demerits of Pipeline Transportation) 18-19

7. Paradip-Hyderabad Pipeline 20-27

(Justification of Proposed Pipeline) 20

2
 (Justification of Increase in Cost Since First Stage 20-21
Approval)

(Justification of Increase in Cost of Marketable

Facilities) 22

(Project Description)
22
(System Requirements)
23
(Additional Facilities at the Existing Marketing
Depots) 23-24

(Financial Analysis) 24-25

(Economics Study of the Alternative Pipelines)

25-26
(Conclusions & Recommendations)
27

8. References 28

3
 CERTIFICATE

I, Mr. Ayan Singh, Register Number 1620309 certify that the Summer Training Report entitled
“Project Evaluation of Paradip-Hyderabad Pipeline Project” is done by me and it is an
authentic work carried out by me at Indian Oil Corporation Limited. The matter embodied
in this report has not been submitted earlier for the award of any degree or diploma to the best
of my knowledge and belief.

Signature of the Student

Date:

Certified that the Summer Training Report entitled “Project Evaluation of Paradip-
Hyderabad Pipeline Project” done by Mr. Ayan Singh”, Register Number 1620309, is
completed under my guidance.

Signature of the Guide

Date:
Name of the Guide: Ritika Sahu
Designation: Assistant Manger
Address: A-1, Udyog Marg, Sector-1, Noida-201301

4
 ACKNOWLEDGEMENT

I would like to recognize the contribution and guidance of Mr. SS Mittal (Chief General
Manager, Indian Oil Corporation Ltd., Pipeline Division) for giving me an opportunity to work
for this company. I would also like to thank Ritika Sahu (Chief Finance Manager, Indian Oil
Corporation Ltd. Noida) who helped me to complete the summer internship with valuable
technical training and inputs for the project report. She has always guided me whenever
required.

I would also like to express my gratitude to Professor Gnanendra M for his guidance and
support. He has always been available to provide valuable suggestions and guidance. Also,
communicating to him has always been easy.

Lastly I would like to thank Mr. Sauradip Bhattacharyya, (Chief Finance Manager) for giving
me this project of working with the company and it has indeed been a great learning experience
till date.

5
 1. EXECUTIVE SUMMARY

The task proposed is to study about the budgetary feasibility of a major capital intensive venture in the
Pipelines Division of Indian Oil Corporation Limited. With a plan to upgrade the transportation levy,
activities had been started to set up a branch pipeline from New Sambalpur Pipeline to Raipur and
Ranchi, which is developed indigenously by the Company's Research and Development department.

The undertaking included learning the working of the Finance office in the pipelines in breaking down
the money related suitability of such proposals by the Technical department. The project is then aimed
towards developing an understanding the various guidelines that the company follows to
determine the feasibility of Capital Budgeting decisions. These understanding formed the basis
for conducting the future study necessary to go ahead with the project. The first step in exercise
was to have a brief idea about the background and process description of the technology,
reviewing the need and justification established by the technical department and the
consequences if the project is not implemented. The analysis of available alternatives to fulfill
the same need is also very important. The current throughput of the 3 products i.e. Motor Spirit
(MS), Superior Kerosene Oil (SKO) and High Spirit Diesel (HSD) were compared with their
future throughputs and demands.

The next part of the project involved identifying and bifurcating the details and basis of the
project cost, comparing the cost with similar projects and determining the phasing of
expenditures. Finally, the financial analysis of the proposed project was done to determine its
viability and profitability. This analysis is basically required in the pipelines to analyze the
financial aspects of any capital investment project along with its technical feasibility. It is very
important for capital intensive companies to determine the return for every project because an
unprofitable venture might prove disastrous for the growth and survival of the company.

Along with the above mentioned on site project, the report comprises of industry and company
analysis. It focused on building on an understanding of the oil and gas sector in India, in terms
of size of the market, production consumption and other relevant information. This is followed
by an introduction to IOCL, its history and progress, revenues and profitability analysis and
financial ratio analysis.

6
 2. THE INDUSTRY

The petroleum industry, also known as the oil industry or the oil patch, includes the global
processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines),
and marketing of petroleum products. The largest volume products of the industry are fuel
oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products,
including pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, and plastics.

Petroleum is vital to many industries, and is of importance to the maintenance of

industrial civilization in its current configuration, and thus is a critical concern for many
nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from
a low of 32% for Europe and Asia, to a high of 53% for the Middle East.

Other geographic regions' consumption patterns are as follows: South and Central
America (44%), Africa (41%), and North America (40%). The world consumes 30
billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers.
The United States consumed 25% of the oil produced in 2007. The production, distribution,
refining, and retailing of petroleum taken as a whole represents the world's largest industry in
terms of dollar value.

Governments such as the United States government provide a heavy public subsidy to
petroleum companies, with major tax breaks at virtually every stage of oil exploration and
extraction, including the costs of oil field leases and drilling equipment.

7
 3. COMPANY OVERVIEW

2.1 About the Company

Indian Oil Corporation Limited (IOCL) commonly known as Indian Oil is an Indian state
owned Oil and Gas Company with registered office at Mumbai and primarily headquartered
in New Delhi. It is the largest commercial enterprise in the country, with a net profit of INR
19,106 crore (USD 2,848 million) for the financial year 2016–17. It is ranked 1st in Fortune
India 500 list for year 2016 and 168th in Fortune's ‘Global 500’ list of world's largest
companies in the year 2017. As of 31 March 2017 Indian Oil’s employee strength is 33,135,
out of which 16,545 are in the officer cadre.

Indian Oil’s business interests overlap the entire hydrocarbon value-chain, including refining,
pipeline transportation, marketing of petroleum products, exploration and production of crude
oil, natural gas and petrochemicals. Indian Oil has also ventured into alternative energy and
globalization of downstream operations. It has subsidiaries in Sri Lanka (Lanka IOC) Mauritius
(Indian Oil (Mauritius) Ltd) and the Middle East (IOC Middle East FZE. Indian Oil is scouting
for new business opportunities in the energy markets across Asia and Africa. It has also formed
about 20 joint ventures with reputed business partners from India and abroad to pursue diverse
business interests. Indian Oil has its R&D Centre located in Faridabad, Delhi NCR.

2.2 Company’s Vision

Indian Oil’s ‘Vision with Values’ encompasses the Corporation’s new aspirations – to broaden
its horizons, to expand across new vistas, and to infuse new-age dynamism among its
employees.
Adopted in the company’s Golden Jubilee year (2009), as a ‘shared vision’ of Indian Oil People
and other stakeholders, it is a matrix of six cornerstones that would together facilitate the
Corporation’s endeavours to be ‘The Energy of India’ and to become ‘A globally admired
company’. More importantly, the Vision is infused with the core values of Care, Innovation,
Passion and Trust, which embody the collective conscience of the company and its people, and
have helped it to grow and achieve new heights of success year after year.

8
 2.3 Major Divisions

There are 7 major Business Divisions in the organization:

 Refineries Division
 Pipelines Division
 Marketing Division
 R&D Division
 Petrochemicals Division
 Exploration & Production (E&P) Division
 Explosives and Cryogenics Division

2.4 Products and Services

Indian Oil accounts for nearly half of India's petroleum products market share, 35% national
refining capacity (together with its subsidiary Chennai Petroleum Corporation Ltd., or CPCL),
and 71% downstream sector pipelines through capacity. The Indian Oil Group owns and
operates 11 of India's 23 refineries with a combined refining capacity of 80.7 MMTPA (million
metric tonnes per annum). Indian Oil's cross-country pipeline network, for transportation of
crude oil to refineries and finished products to high-demand centers, spans over 13,000 km The
company has a throughput capacity of 80.49 MMTPA for crude oil and petroleum products
and 9.5 MMSCMD for gas. On 19 November 2017, IOC, in collaboration with Ola, launched
India’s first electric charging station at one of its petrol-diesel stations in Nagpur.[20] Indian
governments’ National Electric Mobility Mission Plan launched in 2013 aims at gradually
ensuring a vehicle population of 6 to 7 million electric and hybrid vehicles in India by 2020.

2.5 Operational Performance

 Refineries

Indian Oil refineries achieved the highest ever crude throughput of 65.19 million tonnes
during the year 2016-17 as against a 56.69 million tonnes in 2015-16. The capacity

9
utilisation (excluding Paradip Refinery) was 105.1 per cent as against 103.7 during 2015-
16. The refineries (excluding Paradip Refinery) also achieved the best performance in
energy parameters of Fuel & Loss, Specific Energy Consumption (MBN) and Energy
Intensity Index (EII) at 8.49 per cent, 74.9 and 101.5 respectively, as against 8.53, 76.6 and
101.8 registered during 2015-16.

The Paradip Refinery, which was commissioned and began operations in March 2016 in
a phased manner, has fully stabilised and achieved an overall capacity utilisation of 54.9%
in 2016-17, touching a peak of 96.4% in March 2017. It has achieved 100% capacity
utilisation in May 2017.

 Pipelines

Indian Oil Pipelines achieved the highest ever throughput of 82.49 million tonnes during
the financial year 2016-17 as against a throughput of 79.82 million tonnes in 2015-16. The
crude oil pipelines recorded the highest ever annual throughput of 51.34 million tonnes,
The Coker unit at Indian Oil’s Barauni Refinery, revamped during the year 2016-17, for
enhanced distillate yield. 27 and 2,441 retail outlets were converted to operate on solar
energy during the year, taking their number to 6,607. Health & eye check-up of over 75,000
truck drivers was carried out at the retail outlets and transport hubs during the year.

 Marketing

Indian Oil Corporation dominated the domestic market with a market share of 42.9% and
sold 74.11 million tonnes of petroleum products during the year, as against 72.60 million
tonnes during the previous year. In addition, 4.72 million tonnes of petroleum products
were exported during the current year as against 3.46 million tonnes exported during the
previous year. Your Corporation took several exceptional initiatives during the year in
ensuring the supply of petroleum products in exceptional situations, which include supply
to Tripura via Bangladesh, airlifting fuel supply to curfew-struck Manipur, supplies in
Kashmir valley and cyclone-hit Chennai, etc.

10
 2.6 SWOT Analysis

Strengths

 IOCL is India's largest commercial enterprise with a strong brand name

 Indian Oil has petroleum products, fuels, lubricants, petrochemicals etc.

 Operates many refineries in India

 Huge distribution network through retailing makes Indian Oil a popular brand name

 Accounts for a majority share in the petroleum products market and substantial share
in refining capacity and downstream sector pipelines capacity in India

 IOCL has over 35,000 employees

 Strong branding and marketing exercises through TVC, sponsorships, print, online ads
etc. make Indian Oil a top brand

Weaknesses
 High competition from other oil companies means limited market share growth

 Bureaucracy affects the operations of a government controlled company like IOCL

Opportunities
 IOCL can tap on increasing demand and higher fuel/oil prices

 Increasing natural gas market for industries and transportation

 Global expansion with tie-ups with international oil companies

 Acquisition of smaller companies can further strengthen the position of IOCL

Threats
 Government regulations can slow down business
 High Competition means limited market share for IOCL

11
  NGOs and environment focused companies can be an obstacle in business

2.7 Competitors

At present, there are four PSUs namely, IOCL, HPCL, BPCL & IBP (subsidiary of IOC)
marketing oil products in the country. In addition, certain private players like Reliance,
Essar & Shell have also been granted marketing rights for transportation fuels.

Bharat Petroleum Corporation (BPCL)

BPCL was incorporated in 1952 when the Government entered into a joint venture with
Burma Oil & Shell Petroleum. Subsequently, the company was nationalized by way of
acquiring a 100% equity stake in 1976, but subsequently the Government has let go a
part of its holding to financial institutions, mutual funds, etc. Today, BPCL is the second
largest refining & marketing company in India, & has now three refineries, including KRL
& NRL, & another target for disinvestment, that has been stuck up in the middle of the
process along with HPCL.

Hindustan Petroleum Corporation (HPCL)

HPCL was incorporated in 1974, on the nationalization & merger of Esso India & Lube
India. It now has two refineries in Mumbai & Vizag with capacities of 5.5 MMTPA & 7.5
MMTPA respectively. HPCL is an integrated company, having its operations in the refining
as well as marketing activities.
The company aims to improve its market share by focusing on customer relationship
management, & focusing on providing additional value added services.

Reliance Industries Limited (RIL)

Reliance Petroleum was incorporated in 1991 as Reliance Refineries, but changed its
name to the former in 1993, and has since merged with its parent company RIL. Its refinery
is a standalone, & is at Jamnagar, on the country’s western coast. The refinery was

12
commissioned in July 1999, & it commenced its operations in 2000-01. It is India’s
largest standalone refinery, & constitutes 34.4% of the country’s refining capacity.
Additionally, the Jamnagar refinery is also the world’s fifth largest refinery at a single place.
RIL is a private integrated player in India, & has established a retail network of more than
1300 units.

2.8 Indian Oil’s Dominance in Downstream Oil Sector

 Indian Oil has the largest refining capacity in India comprising of almost 31% of the
market share.
 It has the highest Petroleum products market share of 46%.
 87% downstream market share in crude oil pipelines.
 Largest provider of pipelines for petroleum products of 50% approximately.
 89% market share of bulk consumer pumps.
 52% market share in LPG dealership.
 54% of total consumer touch points.

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2.9 Board Structure and Shareholding Pattern

IOCL being a state owned firm, major shares of the firm are owned by the Government of
India. A minor share of about 6.46% is held by individual retail investors i.e. general public
holding

(A) Shareholding of Promoter and Promoter Group

(1) Indian
Central 1 5,533,436,444 5,533,436,444 56.98 56.98
Government / State - -
Government(s)
Sub Total 1 5,533,436,444 5,533,436,444 56.98 56.98 - -
(2) Foreign
Sub Total - - - - - -
Total 1 5,533,436,444 5,533,436,444 56.98 56.98
shareholding of
Promoter and - -
Promoter Group
(A)
(B) Public Shareholding

14
 (1) Institutions
Mutual Funds / 36 401,219,376 401,206,280 4.13 4.13
- -
UTI
Financial 39 8,510,112 8,464,052 0.09 0.09
- -
Institutions / Banks
Central 1 10,800,000 0.11 0.11
Government / State - - -
Government(s)
Insurance 8 593,167,402 593,162,602 6.11 6.11
- -
Companies
Qualified 604 598,243,782 598,243,782 6.16 6.16
- -
Foreign Investor
Any Others 1 200 200
- - - -
(Specify)
Sub Total 689 1,611,940,872 1,601,076,916 16.6 16.6 - -
(2) Non-
Institutions
Individual 331,265,939 306,046,688 3.41 3.41
shareholders
holding nominal
337,453 - -
share capital in
excess of Rs. 1
lakh
Qualified
- - - - - -
Foreign Investor
Any Others 6,775 2,235,166,673 2,234,747,737 23.01 23.01
- -
(Specify)
Sub Total 344,228 2,566,432,612 2,540,794,425 26.43 26.43 - -
Total Public 344,917 4,178,373,484 4,141,871,341 43.02 43.02
- -
shareholding (B)
Total (A)+(B) 344,918 9,711,809,928 9,675,307,785 100 100 - -
(C) Shares held
by Custodians
and against which
- - - - - - -
Depository
Receipts have
been issued-m
Sub Total - - - - - -
Total 344,918 9,711,809,928 9,675,307,785 100 100
- -
(A)+(B)+(C)

15
 4. PIPELINES DIVISON

4.1 Introduction

Pipeline transport is the transportation of goods or material through a pipe. The latest data
from 2014 gives a total of slightly less than 2,175,000 miles (3,500,000 km) of pipeline in 120
countries of the world. The United States had 65%, Russia had 8%, and Canada had 3%, thus
75% of all pipeline were in these three countries.

Length ( KM)
16000 14278
14000
11214
12000
8951
10000
8000 6364
5423
6000 3980
4000 2014
2000 435
0
1964 1975 1985 1995 2000 2005 2014 2015

Oil pipelines are made from steel or plastic tubes which are usually buried. The oil is moved
through the pipelines by pump stations along the pipeline. Natural gas (and similar gaseous
fuels) are lightly pressurised into liquids known as Natural Gas Liquids (NGLs). Natural gas
pipelines are constructed of carbon steel. Hydrogen pipeline transport is the transportation of
hydrogen through a pipe. District heating or tele heating systems use a network
of insulated pipes which transport heated water, pressurized hot water, or sometimes steam to
the customer.

Pipelines conveying flammable or explosive material, such as natural gas or oil, pose special
safety concerns and there have been various accidents. Pipelines can be the target
of theft, vandalism, sabotage, or even terrorist attacks. In war, pipelines are often the target of
military attacks.

16
4.2 Development of Pipelines in India

In India’s infrastructure, the petroleum pipelines form a crucial part enabling sustained
availability of petroleum products in all parts of the country for economic growth. The pipelines
transport petroleum products from refineries to demand areas and crude oil from import
terminals as well as domestic sources to the inland refineries. India being a vast country, a wide
network of pipelines becomes the paramount requirement of transporting petroleum products
to interiors from refineries and crude oil to the land locked refineries.

It is an established fact that pipelines are preferred as a cost effective, energy efficient, safe and
environment friendly method of transportation for petroleum products and crude oil and are
playing a leading role in meeting the demand for petroleum products in India. Economic growth
and expansion of infrastructure in India offer opportunities to better utilize the existing pipeline
network in addition to expand by constructing new pipelines.

4.3 Pipeline in Indian Oil

Indian Oil Corporation Ltd. operates a network of about 12,848 km long crude oil, petroleum
product and gas pipelines with a throughput capacity of 93.7 million metric tonnes per annum
of oil and 9.5 million metric standard cubic meter per day of gas. Cross-country pipelines are
globally recognized as the safest, cost-effective, energy-efficient and environment-friendly
mode for transportation of crude oil and petroleum products. As a pioneer in oil pipelines in
the country, managing one of the world's largest oil pipeline networks, Indian Oil achieved the
highest-ever throughput of 79.8 million tonnes during the year 2015-16, which was about 5.5%
more than that of the previous year.

Indian Oil, the pioneer in cross-country petroleum product pipeline in the Indian sub-continent
constructed and commissioned its first petroleum product pipeline, Guwahati-Siliguri Pipeline
in the year 1964. Since then Indian Oil has mastered the art and technology of pipeline
engineering. Over the last four decades the pipeline network of Indian Oil has grown to 11,214
km. various initiatives in the field of project management, operations and maintenance
including training in countries like Oman, Ethiopia, Kuwait and Sudan have been undertaken.

17
Today Indian Oil is well placed to provide seamless services in the entire spectrum of
petroleum pipelines covering techno-economic feasibility studies, design and detailed
engineering, project execution, operations and maintenance, consultancy services in
augmentation and modernization, etc.

4.4 Merits & Demerits of Pipeline Transportation

ADVANTAGES OF PIPELINE TRANSPORTATION

 Cost effective
 Economies of scale
 Negligible transit loss
 Energy efficient
 Reliable
 Safe, environment friendly

WEAKNESSES IN PIPELINE TRANSPORTATION SYSTEM

 Capital intensive
 Viability depends on utilization
 Once laid, it is sunk cost/No alternate use
 Inventory carrying cost

18
 Less flexibility regarding batch size
 Interface and contamination of product
 Door to Door delivery not possible

19
5. PARADIP-HYDERABAD PIPELINE

5.1 Justification of Proposed Pipeline

(a) IOC had to incur Rs. 320 crore and Rs. 382 crore in 2011-12 and 2012-13 for positioning
products at Vizag, Rajahmundry, Vijayawada and Hyderabad, which would increase further in
the coming years. If the cost of positioning products at South Odissa markets is also considered,
the total cost of positioning products in South Odissa (Berhampur) and depots at Vizag,
Rajahmundry, Vijayawada and Hyderabad will be still higher, which has been brought out in
the Optimization study report. With the proposed pipeline, IOC would be able to save
substantially in product positioning cost at its aforementioned depots and would also avoid
multiple handling of products, which leads to transit losses.

(b) As the demand is increasing consistently, the existing product positioning arrangement
would not be adequate in meeting the demand in a reliable and cost-effective manner. The
proposed pipeline would help in maintaining our market share in Andhra Pradesh, Telangana
and South Odissa by ensuring uninterrupted supply of products.

5.2 Justification of Increase in Cost Since First Stage Approval

 As per the process of approval of major project, first a Feasibility Report (FR) is
prepared for First-Stage approval of the project. The objective of this is to establish the
technical feasibility and prima-facie financial viability based on preliminary studies
along with the approval for incurring expenditure required for undertaking pre-project
activities, which include detailed route survey, environmental and other studies
required for preparation of DFR etc.

 During detailed feasibility study, various options are evaluated, the most optimal
pipeline route, intermediate pumping/delivery stations, equipment configurations etc.
are finalized and project cost is worked and presented for final approval of the
management. Depending upon the complexity of the projects, the cost estimated at the
time of preparation of DFR could be at large variance with that in FR.

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 First-stage approval for the proposal was obtained in May 2012 at an estimated cost of
Rs.1557 crore, including Rs.125 crore towards marketing facilities. The present cost is
Rs.2789 crore, as per the following break-up:

(i) Pipeline : Rs. 2321crore

(ii) Marketing : Rs. 342 crore
(iii) Refinery : Rs. 126 crore

 The total increase in cost for pipeline facilities is about 900 crores. Major reasons
for this increase are:

 Pipeline Throughput projections increased by about 35%, i.e. from 3.35 MMTPA in Fr
to 4.5 MMTPA in DFR. This has necessitated provision of an additional pump station
at Berhampur and conversion of delivery station into a delivery-cum pump station
Rajahmundry. In addition, line size and grade of pipe have been increased. The total
increase in cost due to the above additional facilities required to pump higher volume
is about Rs. 250 crore.

 Price escalation since FR has been approximately 23% based on average of WPI and
AICPI indices. This has resulted in an increase of about Rs. 275 crore.

 Further increase of about Rs. 225 crore is mainly attributable to additional facilities
envisaged in DFR, like additional sectionalizing valves (SV), booster pumps in Vizag
for pumping coastal inputs, etc. , which came out during detailed survey, detailed
engineering and cost estimation at the time of preparation of DFR.

 Balance increase of about Rs.100 crore is due to associated heads viz. contingency @
5% project management etc. which are consequential increases.

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5.3 Justification of Increase in Cost of Marketable Facilities

The total increase in cost for marketing facilities is about Rs. 217 crore. As regards facilities at
Rajahmundry, there is no major change w.r.t. the tankage (around 20TKL) envisaged during
FR stage and DFR stage. However at Vijayawada, the tankage envisaged increased from 31
TKL to 58 TKL to handle additional products due to rail movement from Vijayawada, which
is now planned as a hub and spoke installation.
Further, cost has also increased due to creation of railway siding facilities at Vijayawada and
additional facilities envisaged during detailed engineering w.r.t revamping/augmentation of
allied facilities i.e. , TT bottom loading facilities along with vapour recovery system, TLF
pump house, etc. for meeting the increased requirements and for compliance with the latest
OISD and environmental norms at both the locations.

5.4 Project Description

PIPELINE ROUTE

The proposed pipeline would originate at Paradip refinery and would traverse as under:
i) Common right-of-way (RoW) with Paradip-Raipur-Ranchi for approximately 118 km
up to Khurdha in Paradip-Sambalpur section.
ii) Thereafter, the pipeline would take a deviation towards north-west side in order to avoid
Chilka lake (duly maintaining a lateral distance of more than 10 km), traverse north of
Panchubhuti Reserved Forest and follow an independent route up to Berhampur. Near
Berhampur, the pipeline would be routed adjacent to Ramagurtha Reserved Forest.
iii) Beyond Berhampur, the pipeline would be laid parallel to NH-5 up to Srikakulam. After
Srikakulam, the pipeline would cross NH-5 in order to avoid Kumli Reserved Forest
and traverse in southern direction, before terminating at IOC's Vizag terminal. After
Vizag, the pipeline would traverse along RoW of GAIL/HPC for about 26 km and then,
in south-west direction parallel to NH-5 up to Rajahmundry terminal.

iv) From Rajahmundry, the pipeline would continue to traverse parallel to NH-5, up to
Vijayawada terminal. Beyond Vijayawada, the pipeline would traverse towards north-
west direction, more or less following NH-9, before terminating at Hyderabad.

22
5.5 System Requirements

Based on the throughput requirements emerging from the optimization study, the configuration
of the pipeline system broadly compromises the following:

(a) Total length: 1150 km

 290 km long, 18'' OD x 0.25'' WT, API 5L-X80 grade pipeline section from Paradip to
Berhampur.
 631 km long, 16'' OD x 0.25'' WT, API 5L-X80 grade pipeline section from Berhampur
to Vijayawada.
 229 km long, 14'' OD x 0.25'' WT, API 5L-X70 grade pipeline section from Vijayawada
to Hyderabad.

(b) Pumping facilities at Paradip.

(c) Delivery-cum-pumping facilities at Berhampur, Vizag, Rajahmundry and Vijayawada.

(d) Delivery facilities at Hyderabad.

(e) Mainline pumping units of adequate capacity.

5.5 Additional Facilities at the Existing Marketing Depots

 It is proposed to provide additional tanks at Rajahmundry and Vijayawada depots, as

under:

DEPOT ADDITIONAL CAPACITY(kl)

HSD MS

RAJAHMUNDRY 10,000 9,600

VIJAYAWADA 28,000 30,000

23
  It is also proposed to provide tank wagon loading facilities at Vijayawada.
 Tanks available at Vizag depot are adequate to accommodate minimum batch lengths
of products to be received through the proposed pipeline.

5.6 Financial Analysis

5.6.1 Project Financing

Capital cost of the project is considered to be financed through internal resources/commercial

borrowings. For the purpose of financial analysis, debt: equity ratio of 1:1 has been considered,
with interest @ 10.2% per annum and repayment in 8 equal instalments with one-year
moratorium from the date of commissioning. Requirement of working capital will be met
through internal resources.

5.6.2 Financial Analysis

 Financial analysis for the proposed pipeline system has been carried out taking into
account the following:
 Capital cost of the pipeline and its operation for 15 years/25 years.
 Throughput and Corporate savings as indicated in the optimization study for
2018-19 and 2021-22 as follows:

PARAMETER 2018-2019 2021-2022

THROUGHPUT(MMT) 4.584 4.992
FROM PARADIP: 4.493 FROM PARADIP : 4.159
FROM VIZAG : 0.091 FROM VIZAG : 0.833
SAVINGS(Rs. Crores) 606.1 671.6

 Benefit due to lower transit loss in pipeline transportation compared to typical

losses permitted for transportation through other mode of transportation.

 Results of the financial analysis are as under:

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 PARAMETER OPERATION FOR

15 YEARS 25 YEARS

ROI (%) 15.8 16.9

ROE(%) 20.0 20.9

 Sensitivity analysis has also been carried out, the result of which are as under:

OPERATIONS FOR

CASE 15 YEARS 25 YEARS

ROI(%) ROE(%) ROI(%) ROE(%)

Increase in capital cost by 10% 14.4 17.3 15.3 18.5

Increase in operating cost by 10% 15.7 19.5 16.6 20.5

Decrease in throughput by 10% 14.0 19.7 15.0 20.7

All the above together 12.2 16.6 13.3 17.8

5.7 Economics Study of the Alternative Pipelines

A present value (PV) analysis of total cash outgo in the two cases i.e. Paradip-Hyderabad
Pipeline (PHPL) and Vizag-Hyderabad pipeline (VHPL) has been carried out by the Div to
compare their relative economics even without any costs associated with Vuzag port
augmentation. Results are as below:

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 S.No. Particulars PHPL (Paradip- VHPL (Vizag-
Hyderabad) Hyderabad)

2018-19 2021-22 2018-19 2021-22

1. Capacity(MMTPA) 4.5 3.9

2. Capital cost (Rs. Lac) 278942 218365

3. Operating Cost (Rs. 10798 `10803 7366 7371

Lac/ year)

4. Transit Loss (Rs. Lac/ 1488 3283 10587 11474

year)

5. Road freight for 0 0 4044 4592

transportation uo to
Berhampur(Rs.
Lac/year)

6. Coastal freight upto 446 4082 20707 22467

Vizag (Rs. Lac/year)

7. TOTAL(3+4+5+6) 12732 18167 42705 45903

(Rs. Lac/year)

8. PV @ 13% for 15 278592 362757

years (Rs. Lac)
(Lowest) (30% Higher)

Thus, PV of the alternative Vizag-Hyderabad pipeline (Rs. 3628 Cr) is higher (inferior) than
that of the proposed Paradip-Vizag-Hyderabad pipeline (Rs.2786 crore) even though the
magnitude of investment in alternative VHPL is less by about Rs. 606 Cr.

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5.8 Conclusions and Recommendations

 The proposed Paradip-Hyderabad pipeline is economically viable under various

scenarios. It would facilitate cost-effective transportation of products from Paradip
refinery to Berhampur in Odisha and 4 major consumption centers wiz. Vizag,
Rajahmundry and Vijayawada in Andhra Pradesh and Hyderabad in Telangana
compared that by other modes of transportation.

 Logistically, another pipeline from Paradip refinery (15MMTPA capacity) is essential

for effective evacuation of products.

 After formation of Telangana, selling HPC’s product in the new state has serious cost
on implications on IOC, as any product sourced from HPC will come under the category
of pre-determined sale, and will attract inter-state taxes. On the other hand,
transportation of products from Paradip refinery to Hyderabad through a pipeline will
be in the nature of a stock transfer. This makes the requirement of the proposed pipeline
all the more relevant and critical.

 In view of the inherent advantages of pipeline transportation as discussed above and

the estimated economic benefits, it is recommended to lay Paradip-Hyderabad pipeline
at an estimated cost Rs.2789 crore, including a foreign exchange component of Rs. 45
crore, at September 2014 price level. This includes Rs. 342 crore towards installing
additional facilities at the existing depots at Rajahmundry and Vijayawada and Rs.126
crore towards additional facilities to be provided in Paradip refinery.

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6. REFERENCES

I. REFERENCES FROM PRINT MATERIALS

 I M Pandey, 10th Edition, Financial Management, Vikas Publication House

 Prasanna Chandra, 5th Edition, Financial Management, Tata Mc Graw-Hill Education

II. REFERENCES FROM ELECTRONIC SOURCES

a) From online newspapers, journals, web pages

 Indian Oil Corporation Limited. Available from http://www.iocl.com/

 Ministry of Petroleum and Natural Gas. Available from http://petroleum.nic.in/
 India Brand Equity Foundation. Available from http://www.ibef.org/
 BP Statistical Review of World Energy, 2012. Accessed from
http://www.bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481
 Annual Report of IOCL

III. SECONDARY REFERENCING

 Operating manual of Paradip-Hyderabad pipeline project.

 Accounts Manual (Secured) ; Pipelines Division, IOCL
 Guidelines for Capital Investment Proposals, IOCL

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