The Telegraph
Since 1st March, 1999
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Petro cess plan for war reserve
- Levy expected to cover all fuels

New Delhi, Jan. 31: The government is considering a proposal to slap a cess of 20 paise a litre on all petroleum products as one of the options to raise a fund of Rs 5,200 crore to create a strategic crude oil reserve.

The move to create a strategic oil reserve has gained momentum with war clouds hovering over the Gulf where the US and allies are squaring off for a battle with Iraq.

At present, the government levies a cess of Re 1 per litre on petrol and diesel for a dedicated fund to construct national highways.

The current thinking in the government is that if the ‘oil reserve’ cess is imposed only on petrol and diesel, it will have to be very high to raise such a large amount of money.

Since the price of these two fuels is already quite high, it would impose a crushing burden on consumers. Spreading it across all petroleum products, including naphtha, furnace oil, aviation fuel, bitumen, LPG and kerosene, would enable the same amount to be raised at a lower rate.

Prime Minister Atal Bihari Vajpayee had announced at the Petrotech-3 international conference here recently that the strategic tankage issue would be taken up seriously.

The concept of constructing strategic storage facilities has been borrowed from the US, Germany and Japan. While the US and Germany have strategic tankage to last them 90 days, Japan has stocks that can run for 120 days.

Such reserves are considered desirable as they help bail out a country during emergency situations such as a war. These reserves also help in tiding over volatile price situations as purchases can be postponed when prices suddenly skyrocket.

The flip side of the coin, however, is that heavy investments are required both for constructing the strategic tankage and purchasing such large quantities of crude. Holding them as inventory locks up huge finances as well.

Officials of the petroleum and finance ministries have already been engaged in discussions on the issue. The biggest problem in creating a strategic oil reserve was to find a way to raise the funds. The petroleum ministry has been insisting that it should come out of the budget.

It has cited the case of the US, Germany and Japan, where strategic stocks are financed by the government. The finance ministry is, however, of the view that the oil companies should foot the bill.

Indian oil companies at present have a maximum of 15 days’ crude storage facilities while the tankage for finished petrogoods is enough to last for 30 days.

However, oil companies often maintain lower levels of inventory to avoid tying up funds which raise their overall costs.

Plans are reported to have been drawn up to build a strategic reserve to hold an additional 5 million tonnes of crude. This will last the country 15 days in an emergency. The tankage facilities will come up at Rajkot in Gujarat, Mangalore in Karnataka and Vizag on the east coast.

As far as the current situation is concerned, the oil companies do not foresee any disruption in supplies even if the US attacks Iraq. IOC chairman M.S. Ramachandran feels that India gets only 1.5 million tonnes of crude from Iraq. This forms a minuscule portion of the 70-million-tonne imports every year.

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