Expansion and feeder lines should augment the corporation's crude oil and petroleum products-carrying capacity to 73 million tonne across 14,000 km by year 2002-03. At present, the company transports 33.95 million tonne of crude and products along a 5,762-km pipeline network.

A master plan, awaiting the Indian Oil board approval, is to further augment its pipeline network's capacity to 88 million tonne by year 2006-2007.

"This country needs pipelines, particularly for products," Indian Oil director, pipelines, SN Jha said, who confirmed the network-building exercise through affordable investments.

The master plan emerges at a time when the union petroleum ministry is working on a commercial tariff structure for pipeline users. The hospitality arrangements thatIndian Oil offers its fellow national oil companies on its giant labyrinth of pipelines entitle it to an administered remuneration of 12 per cent post-tax return on net worth and operating cost.

After 2002, which is the terminal year for the administered price mechanism (APM) for the oil industry, pipeline owners will be entitled to negotiate more commercial tariff structures with users. Already Indian Oil provides tap-off facilities to HPCL and BPCL along the Kandla-Bhatinda product pipeline.

It is also negotiating terms for evacuating products of Essar Oil and Reliance Petroleum along the same route, with the help of the Vadinar-Kandla pipeline that will come up under the Petronet India banner. There are other indications that Indian Oil was slowly gearing up to convert its ready-made pipeline infrastructure into a profit centre.

The pipelines divisions is headed by a member of the board for the first time. In January this year, pipelines became the "strategic business unit" of the company along withits lubricants, LPG and marketing divisions.

The business unit comes complete with a consultancy wing which solicits business from newcomers in the business like Petronet LNG and Petronet India subsidiaries.

The thrust on building on the company's inherent strength in pipelines also comes at a time when the oil market is gradually becoming competitive, where only the best and the lowest-cost supplier would survive.

Indian Oil will need an infrastructure to evacuate its own products from refineries undergoing a capacity expansion (like its Gujarat refinery) and new refineries expected to go on stream shortly at Panipat and Paradip. The super highway should materialise around 2006 at a time when the demand for petroleum products is slated to grow 6.8 per cent to 155 million tonne from 80 million tonne.

INSIGHT

A week after Reliance Petroleum 's proposal to set up a product pipeline of its own, IOC has submitted a proposal for augmenting its own network. In spite of the policy decision by thegovernment not to allow IOC to start a new pipeline, the corporation seems to have found a way out by saying that the present doubling of its network would be an extension of its present product pipelines. The proposed network would bridge any surplus demand and supply with the least effect on prices, post-APM.

Moreover, investments for building a pipeline for transporting additional 39 mt of petro products are very small compared with the cost of setting up an inland refinery along with a pipeline for transporting crude. But the government should continue with some cost-plus formula for use of pipelines and set up a regulatory body to oversee the tariff charged by the pipeline. Even if the government retains the present 12 per cent return on investment as criteria for fixing tariff on the pipelines, IOC would still earn an internal rate of return of around 16 per cent for the pipelines -- which is fairly decent.