FIXATION OF JLPL & VSPL

TARIFF BY PNGRB

AN OVERVIEW OF GAIL’s
SUBMISSIONS TO THE BOARD

GAIL (India) Ltd.

1
 LPG TRANSPORTATION – CURRENT SCENARIO

Presently, out of about 11 MMTPA bulk LPG

transportation in the country :
 62% still through costliest / hazardous mode of
Road Tankers.

 9% by Rail.
 Whereas 29% through Pipelines, mainly JLPL & VSPL.
2
IS RAILWAY REALLY THE ALTERNATE MODE TO LPG
PIPELINES ?
Even today, Railways have capacity to move about 1.3
MMTPA LPG only.

This capacity has remained stagnant for last over 10

years with minor variation from time to time.

During 2011-12 also, Railways have moved about 1.3

MMTPA LPG as against aggregate 3.9 MMTPA moved
by LPG Pipelines, with GAIL’s JLPL and VSPL accounting
for 87% movement.

Only other alternate to Rail & Pipeline is Road which is

about four times costlier than Rail movement.
3
 HOW LPG PIPELINE TARIFF FIXATION BY PNGRB
IMPACTS GAIL ?
 GAIL intends to augment JLPL capacity to 4.5 MMTPA to serve
Industry and the nation at large, for meeting future LPG deficit in the
Northern Region.

 With Pipeline tariff limited to Class 180 Bare Railway Freight without
additional levies, the post-tax IRR for JLPL capacity augmentation
case works out to a dismal 7.85% only, far below the level of 14%
proposed by PNGRB itself in their first draft Product Pipeline Tariff
Regulation notified in 2009.

 Similar working carried out for VSPL has revealed a NEGATIVE post-
tax IRR.

 EXTANT LPG PIPELINE TARIFF FIXATION BY PNGRB IS CLEARLY

A DIS-INCENTIVE FOR GAIL TO EVEN CONTINUE LPG PIPELINE
BUSINESS, MUCH LESS TO CONSIDER FURTHER CAPACITY
CREATION IN THE COUNTRY– ONE OF THE DECLARED GOALS 4
OF PNGRB
 HOW LPG PIPELINE TARIFF FIXATION BY PNGRB
IMPACTS OMS’s & END CONSUMER ?
OMC’s LPG transportation bill - approx. Rs. 1700
Cr./annum-will reduce barely by 3-5 %.

GAIL shares LPG subsidy burden with OMC’s - Rs. 2111

Cr. in 2010-11 and Rs. 3183 Cr in 2011-12.

No benefit to end consumer since :

 LPG Selling price regulated by Govt.
 Bulk (almost 62%) of LPG movement by OMC’s still
through Road - the costliest mode.
 Transportation element – about 6% in LPG price to
end consumer.
IMPACT ON OMC’s AND CONSUMER AT LARGE – 5
NEGLIGIBLE
 WHAT GAIL SEEKS FROM THE PNGRB ?
 While adopting Rail as alternate mode for regulating LPG Pipeline Tariff is
obviously not the right approach, benchmarking with ‘Bare Railway Freight’
is indeed unfair.

 Board to consider LPG movement by Pipeline on a “like-to-like” basis with

Rail Movement, and allow for ‘Composite Railway Freight’ as against ‘Bare
Railway Freight’ to compensate the impact of additional infrastructure /
expenses incurred in replicating LPG movement on ‘door-to-door’ basis by
Rail mode.

 At the bare minimum, the impact of various levies charged by Railways on

‘Bare Railway Freight’ must be considered for according ‘like-to-like’
treatment in case of LPG Pipeline Tariff.

 Class 200 freight to be considered as against Class 180, as GAIL already

shares huge LPG subsidy burden with OMC’s.
 Kandla-Samakhiali section in JLPL to be treated at par with other spur line
for compensation of Capex.
6
THANK YOU

7
 BARE v/s COMPOSITE RAILWAY FREIGHT–
A COMPARATIVE ANALYSIS
 Pipeline transportation delivers LPG right at consumption centre.

 Additional infrastructure/investment - Rs. 120 to 140 Cr. per Rail

fed bottling plant - for one-to one substitution:
Railway Siding
 Rail wagons to carry LPG
Charges towards placement of wagons.
Bulk LPG Storage Tanks.

 Additional cost implication - Rs. 1.69 to 2.67/MT/Km.

over and above bare Railway Freight - on account of
interest, depreciation and M/R on capital as
illustrated in next slide.
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 ASSUMPTIONS FOR ADDITIONAL INVESTMENT
REQUIRED FOR RAIL MODE

1. COST OF ONE TANK WAGON - Rs. 70 Lacs.

2. No. OF ROUND TRIPS/MONTH/RAKE - 04 (VSPL),
- 03 (JLPL)
3. RAKE- 30 (8 WHEELER) T/WAGONS OF 37 MT CAPACITY EACH.
4. RAKES TO COVER 1100 KMS. - 04 (120 T/W)
5. RAKES TO COVER 600 KMS. - 03 (90 T/W)
6. COST OF FOUR RAKES (120 TANK WAGONS) - Rs. 8400 Lacs.
7. COST OF THREE RAKES (90 TANKS WAGONS) - Rs. 6300 Lacs.
8. COST OF A RAILWAY SIDING - Rs. 4000 Lacs.
9. ADDL. TANKAGE TO COVER 7 DAYS INVENTORY - 2000 MT
10. COST OF CREATING TANKAGE - Rs. 0.8 Lacs/MT
11. COST OF ADDITIONAL TANKAGE - Rs. 1600 Lacs.
12. AVERAGE LPG PRICE (2009-10) - Rs. 29000/MT
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 BARE v/s COMPOSITE RAIL FREIGHT – ILLUSTRATION
S.No ITEM DESCRIPTION VSPL JLPL
.
1 VOLUME (MTPA) 120000 120000
2 DISTANCE (KMS.) 600 1100
3 CAPITAL EXP.-SIDING,ADDL. 11900 14000
TANKAGE & WAGONS (Rs. Lacs)
4 OPERATING EXPENSES : Rs, Lacs Rs./MT Rs, Lacs Rs./MT
INTEREST ON CAPITAL – 979 816 1151 960
DEBT:EQUITY::70:30 (11.75% of 3)
DEPRECIATION(4.75% of 3) 565 471 665 554
M&R(2% of 3) 238 198 280 233
MANPOWER(RLY) 9.6 8 9.6 8
POWER 12 10 12 10
PLACEMENT 12 10 12 10
STOCK LOSS(AVG. 0.3%) 104 104
SUB TOTAL 1920 1600 2234 1862

5 ADDL.FREIGHT CONTRIBUTION 2.67 1.69

(Rs./MT/KM.)
6 BARE RAILWAY FREIGHT 1.25 1.19
(Rs./MT/KM)
7 COMPOSITE RAILWAY 3.92 2.88
FREIGHT (Rs./MT/KM) – (5 + 6)