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Amit Mitra

To keep freight costs down, the oil companies have proposed to join hands for the combined movement of petroleum products along the coastal route. Separate movement, they feel, would result in reduction of the parcel size, duplication of movement and port congestion.

The synergy that will be brought about by the oil companies' move to join hands for the combined movement of petro-leum products along the coastal route will reduce POL freight costs substantially.

IN THE light of the growing demand for domestic movement of petroleum products, a proposal has been mooted by the oil companies to join hands for the combined movement of the products along the coastal route. This is part of the oil companies' programme to sharpen its focus on coastal movement of petroleum products to water down its freight cost.

Industry experts say that the domestic oil companies have realised that if separate coastal movement of petroleum products is followed, it would result in reduction of the parcel size, duplication of movement and port congestion, the debilitating denouement being increased freight costs.

"Informal discussions between the oil companies on this issue have been initiated. But one thing is clear. If this kind of synergy is brought about by the oil companies, coastal movement of petroleum products will get a significant boost which, in turn, will substantially reduce the freight costs in POL movement," an oil industry source said.

The present Indian fleet of coastal ships, including tugs, passenger vessels and dredgers, stands at 244, with a combined DWT of 7.04 lakhs. Of these, 12 vessels, involving a DWT of 61,027, are being used for movement of POL products and, two, involving a DWT of 82,246, for crude movement.

That coastal movement should be encouraged in this sector is clear from the fact that the demand for petroleum products during the terminal year of the Tenth Plan (2006-07) is estimated to rise to 123.3 million tonnes as a base case and 133.9 million tonnes as a upper case.

According to a report by the Indian School of Petroleum, in the last fiscal, the domestic refining capacity was about 115 million tonnes. Considering the projects under implementation and the projects at various stages of approval, the refining capacity in India is likely to go up by 106 million tonnes by 2006-07.

According to industry projections, the total coastal movement of petroleum products, including de-regulated products movement by individual oil companies, is expected to increase from about 9 million tonnes in 2002-03 to 9.72 million tonnes this fiscal.

The coastal fleet under the PSU oil companies now stands at six vessels of over 40,000 DWT, another six of 21,000 to 30,000 DWT and five of less than 21,000 DWT.

The oil companies are keen on increasing the share of coastal movement of petroleum products, primarily due to economic reasons. "The freight cost for pipeline movement is about 75 per cent of the rail freight and road movement about 180 per cent of rail freight, while coastal movement involves only 41 per cent of the rail freight. It is clear that we have to increase the share of coastal movement," an industry expert pointed out.

During 2003-03, 40.7 per cent of the petroleum products in India was moved through pipeline and 46.3 per cent through rail, while coastal movement accounted for a mere 8.8 per cent. As a matter of fact, coastal movement of POL and other commodities has not registered the desired growth rate during the last several years due to a variety of factors. Overall, coastal cargo movement now stands at about 30 million tonnes, with the share of POL products, coal and iron pellets accounting for 96 per cent and general cargo only about 1 per cent.

Compare this with China, Japan, Korea and Indonesia, where more than 870 million tonnes, 549 million tonnes, 141 million tonnes and 133 million tonnes of different cargoes were moved even before 1998, according to a report.

The factors that have stymied growth of coastal shipping include lack of facilitative policies like an independent governing body, inadequate infrastructure facilities such as insufficient draft at most minor ports and low productivity at ports, high bunker prices for coastal vessels (average duty of 30 per cent), lack of concessions in Custom duties for import of spares (average 60 per cent) and competition from road transport, which used heavily subsidised diesel.

Oil industry sources feel that coastal movement of petroleum products was being stunted by the slow pace of port development to match the projected traffic, lesser drafts at ports, especially at Kolkata, Haldia, Kandla and Kochi, time-consuming Custom procedures required to be followed by coastal vessels and poor age profile of Indian coastal vessels.

The oil industry is thus eagerly awaiting the early constitution of the Sagar Mala Development Authority , which would involve payment of a cess of 5 paise per tonne of cargo moved for development of minor ports.

The project, the industry feels, could give the required thrust to coastal movement of POL products, which could give a significant advantage to the industry.

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