A Rs 10,000 crore battle is brewing between Reliance and Maharashtra

Mysore Colony lies in a part of Mumbai that is distinct from the city that most people see. This is the industrial quarters of the city, in the east. There are no skyscrapers here. Tall grey chimneys billow smoke.There are imposing storage tanks for oil and gas. There’s greenery, a few treelined avenues and a couple of sports clubs. This disparate agglomeration stands under the benign shadow, figuratively speaking, of two large refineries in the area, owned by the state-owned Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL).This is in the Mumbai suburb of Trombay that was once a separate island, but today is well connected to the rest of the city via the Eastern Freeway. There is also India’s first mono-rail track passing by overhead on its raised pillars. While the freeway works like a charm, the monorail ceased operations last November after a fire incident. Not too many complained. There hadn’t been too many takers for its services anyway. However, below the elevated monorail station at Mysore Colony, deep underground, lies a piece of infrastructure that is highly sought after. 64899946 This is the ground zero of a fascinating and unfolding battle between the two large state-run petroleum companies on the one side and the behemoth Reliance Industries Ltd on the other. The matter of contention: twin pipelines that carry aviation turbine fuel (ATF) from these refineries to about 12 km to the northwest, to the Chhatrapati Shivaji International Airport at Santacruz. It’s one of Asia’s busiest airports; 47 million passengers used the airport in 2017. It’s also where a fifth of India’s ATF sales take place.Sale of ATF is a highly regulated and lucrative business, with oil companies typically enjoying a 16-21% profit margin. Reliance Industries, India’s largest conglomerate by market cap, is also the producer of a fourth of India’s ATF. It wants in on the trade in Mumbai airport, worth almost Rs 10,000 crore.A kilometer from the refineries in Trombay is the Pirpau jetty operated by the Mumbai Port Trust. RIL wants to ship ATF from its Jamnagar refinery to the jetty and then use the pipelines to get the fuel to the airport. HPCL and BPCL, the public sector oil companies that own the pipelines, are in no mood to relent. The swirling friction is now pulling in industry lobbies, regulators and other stakeholders into its vortex. The first round has gone to Reliance already. Sector regulator Petroleum and Natural Gas Regulatory Board (PNGRB) has said in a notice on May 4, 2018, the two pipelines (BPCL’s is 15 km long and HPCL’s 19 km) should be “common carriers”. It has sought public opinion on the subject. 64899961 Reliance had approached the PNGRB about the pipelines in November 2016. Reliance has been in touch with the firm managing the airport fuel storage facility since 2014, seeking access to the airport for selling its ATF. In August 2016, Reliance had written to BPCL requesting a meeting to discuss access to its pipeline to bring ATF to the airport. It has also made its case before the PNGRB after the public notice was issued. Why does RIL need these pipelines so bad? Very simply, it’s the most cost-effective way of getting its fuel into the airport. Mumbai’s notorious traffic rules out transporting it in tanker trucks. Laying a fresh pipeline is onerous. It is almost impossible to get right-of-way to finish the work. Public infrastructure showpieces such as the Monorail project are still incomplete for this reason.The Mumbai Airport accounts for 18.9% of the 7.4 mt Indian ATF fuel market and Reliance can crack a big market if it gets access to the airport. It currently has only a 4.2% share of the domestic market and exports most of its ATF. At the heart of the tussle is a reorganisation of the fuel arrangements at the airport. The old storage tanks at the airport were built by HPCL, BPCL and IOC. These assets have now been brought under a new company called Mumbai Aviation Fuel Farms Facility Private Ltd (MAFFFL), with the three PSUs and Mumbai International Airport Ltd as the shareholders. MAFFFL will operate an integrated and “open access” fuel farm that will allow any vendor to sell their ATF at the airport, according to commitments these companies made to the Competition Commission of India in 2014. Reliance is pegging its hopes on the open access mode for the use of ATF infrastructure that Mumbai Airport is about to adopt. But does open access also include the pipeline that gets the fuel in? That is the question before the regulator. A senior Reliance Industries official, who spoke to ET Magazine on the condition of anonymity, said that the company plans to bring in its ATF from Jamnagar in Gujarat through ships up to the Pirpau Jetty and build a short pipeline to feed into the two existing pipelines. 64899977 Another option for the company, the official said, would be to enter into exchange arrangements with the PSU oil companies and become a reseller for their ATF at the Mumbai airport, while offering its products in return in locations closer to its refinery and storage facilities. Such exchange arrangements are common as ATF sales have to meet strict standards. Indian Oil Corporation, with a 59% market share of ATF in Mumbai, actually sells HPCL’s and BPCL’s ATF in Mumbai, and offers them its own ATF in the Northeast. Reliance has a similar arrangement with Shell at Bengaluru.Shadow Boxing Getting the pipelines declared as common carrier could well be a bargaining chip in this tussle. Amber Dubey, KPMG’s partner and head of aerospace & defence, says: “Open access in use of ATF infrastructure is beneficial to the industry as it leads to competition among suppliers and lower cost to airlines. ATF, after all, is the single largest component of airline costs.” Reliance officials argue its entry into any airport has seen the prices drop. Typically, a nominal price for ATF is declared for every airport, but actual supply happens at negotiated discounts on contracts vendors ink with airlines. In 2010, Reliance had complained to the Competition Commission of India about an Air India tender for ATF. It alleged that the PSUs were operating as a cartel, offering discounts in airports where Reliance was present. At other airports all the PSUs put in similarly priced, typically higher, bids. Subodh Dakwale, executive director of Indian Oil Corporation, declined to comment, saying his company did not own the pipelines and the barter arrangement has been in place for decades. Spokespersons for HPCL and BPCL declined comment. An RIL spokesperson did not respond to a request for comment. However, the two PSUs have responded strongly to PNGRB’s May 4 notice. In a June 1 letter, HPCL’s general manager (aviation) Sandip Brahme questioned the basis of the PNGRB notice and argued that power vested with the board to declare a pipeline a “common carrier” relates only to the city gas and natural gas pipelines. 64899990 Brahme further argued that the PNGRB formed its opinion in favour of declaring the pipeline as a common carrier without hearing out HPCL first. In a June 1 letter, BPCL’s chief general manager for pipelines, L R Jain, says there is no excess capacity in the pipelines as the one set up by HPCL in 19961999 is old and its capacity to carry ATF has been constrained. The BPCL pipeline terminates at the Santacruz side of the airport and from that point the ATF is carried to Sahar terminal via the HPCL pipeline. Both PSUs have insisted the pipelines are designed to evacuate products from the refineries and any use by a third party would disturb the process at the refineries, leading to a production slowdown. So far, industry lobbies Ficci, Assocham, CII and the International Air Transport Association (IATA) have written to the PNGRB, arguing the pipelines should be declared as common carriers. Jet Airways and Emirates have also supported this stance, as has the Airports Authority of India. The IATA’s head of commercial fuel services, Melvyn Tan, wrote that the absence of “open access” at Indian airports led to higher ATF prices in top Indian airports when compared to global peers. Dubey of KPMG adds: “Open access to ATF infrastructure will also facilitate direct import of ATF by the airlines. Direct import was allowed several years back by the government, but has not really taken off, with last mile access to aircraft being one of the key stumbling blocks." In fact, Jet Airways has in their letter to PNGRB has said it would also like to import ATF and transfer it to Mumbai Airport through the same pipelines. Direct imports under the open general license allow airlines to avoid the state VAT. It is quite apparent that the PSUs are not in the mood to allow a toe-hold to Reliance in Mumbai airport. Reliance has been viably able to take its ATF to only 10 airports in India. It has emerged as the top supplier in half of these and has grabbed 100% of the market in Jabalpur. The company says it has better service offerings. Which may well be true. But it underscores the company’s marketing muscle, and illustrates why the oil PSUs will be wary of letting the giant into the Mumbai airport.

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