Financial Daily from THE HINDU group of publications
Monday, Aug 05, 2002
SBM means huge savings for KRL But why is CoPT playing spoilsport?
Sajeev Kumar V.
A tanker discharging crude at Kochi port, for Kochi Refineries. KRL hopes to achieve dramatic cost cuts when vessel berthing and turnaround time is shortened once its single-buoy mooring is operational.
FACED with the stiff opposition to the proposed single-buoy mooring project from the Cochin Port Trust (CoPT) workers, the employees of the Kochi Refineries Ltd (KRL) have launched a campaign proclaiming that such a project will benefit the State.
It may be recalled that the proposal for the SBM project had created quite a controversy. KRL feels that the project is a must for its own survival; CoPT, on the other hand, is of the view that the commissioning of SBM will spell doom for the port.
In order to bring about a fitting adjustment between the two competing claims, a joint committee comprising senior executives of both KRL and CoPT has been constituted to examine various proposals mooted by the latter as alternatives to the SBM project.
In their mouthpiece Jwaladhwani, the KRL workers have expressed the view that the SBM facilities will enable the refinery to handle imported crude at a lower cost. Right now the cost is high because the facilities at the port are inadequate, with the result that large crude tankers, particularly VLCCs (very large crude carriers), cannot call at the port with full load or with large average parcel load.
KRL processes crude imported from various sources. This year, in addition to Bombay High crude, accounting for 40 per cent of the total throughput, KRL is planning to process also Suez Blend crude from Egypt (24 per cent), Masila Blend from Yemen (16 per cent), Marib from Yemen (7 per cent), Kuwaity from Kuwait (6.5 per cent) and Arab Mix from Saudi Arabia (6.5 per cent).
Once the SBM is set up with associated facilities, KRL will be able to bring crude from even from far off Nigeria, which offers crude at a cheaper rate. Right now, the advantage of cheap crude is more than offset by high transportation and handling cost, as VLCCs cannot be handled at the port.
According to one estimate, if crude is imported in VLCCs, there will be an annual saving of around Rs 200 crore. Hence the transportation of crude in VLCCs is vital for KRL to survive in the competitive regime, it is emphasised.
The proposed SBM, it is felt, will be a boon to the Kerala economy too. There will be higher revenue earning to the State exchequer. In the absence of SBM, the revenue earning will drop, as KRL will have to cut down on its throughput from 7.5 million tonnes to 3 million tonnes per annum as the company will find it difficult to competitively price its products outside the State. The revenue loss to the Kerala Government thus is estimated at Rs 170 crore.
The KRL workers have also cited the recommendations of the Committee on Public Undertakings (COPU) in favour of SBM and associated facilities with the highest priority. Expressing concern over the high cost of crude transportation, the Committee has pointed out that the refineries in other parts of the country are bringing crude in VLCCs to avail themselves of the cost advantage. At present, ships with average parcel load of less than 60,000 tonne can call at the port due to the draught restriction.
With phased dismantling of the administered pricing mechanism from April 1, 1998, petroleum companies are moving ahead with cost reduction measures to survive in the decontrolled regime. These changes in the market, coupled with proposed quality upgradation of fuels to meet the Euro III norms, have made cost reduction most crucial for KRL.
KRL is being required to incur huge expenses for the proposed quality improvement projects. These investments, which will not yield corresponding financial returns, will force KRL to go for cost reduction measures immediately. If the company fails to meet the Euro III norms in the coming years, KRL will lose its market to its competitors. Apart from its inability to handle large crude carriers with full or substantial load, CoPT suffers from yet another problem.
It takes two days for unloading a tanker, apart from waiting for the favourable tide and pilotage. KRL needs around 13 such shiploads every month. Consequently, incoming ships have to wait for a long time in the outer sea, as a result of which the refinery has to spend an average of Rs 25 crore as demurrage. This is in addition to an estimated Rs 200 crore of extras that the refinery is required to cough up every year due to high transportation costs.
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