New Delhi, July 13: The national oil companies have informed the government that it will cost Rs 2,770 crore to set up a strategic 45-day reserve facility for LPG in the country.
On the face of it, the idea of an LPG storage facility is appealing, but the biggest hurdle will be stumping up the cash for it and then incurring the carrying cost of maintaining such a large inventory.
Sources say the oil companies have recommended that if the government wants to go ahead with the plan, a separate corporation should be floated to undertake the project.
Under the proposal, this corporation will require equity contributions from the government and other financial institutions. The corporation would develop the tankage after working out the detailed technical feasibility and would be compensated through an approved mechanism.
The national oil companies have also recommended that the return on investment and cost towards depreciation and operating expenses could be covered through a ‘cess’ or additional excise duty on the consumption of petroleum products in the country.
The plan drawn up by the national oil companies envisages the setting up of 5,30,000 tonnes of strategic storage capacity for LPG in three phases proposed to be completed by 2007-08.
It is quite clear that the national oil companies, which are already being forced to foot the subsidy bill on LPG and kerosene, are not keen on bearing any extra burden for strategic storage.
Although these companies have the technical expertise for carrying out the project, the huge investment is bound to hit their bottomlines.
Senior company officials say any decline in the financial performance of public sector undertakings affects their future investment plans and efficiency in the long run. This could prove dangerous as they are expected to compete with private companies that have now entered the hydrocarbon sector.
However, with the government already in election mode, it is quite unlikely to slap a cess that will raise the prices of petroleum products.
The rationale for planning a strategic reserve for LPG was based on the fact that a large amount of the demand is still met through imports mainly from West Asia. Since there was a possibility of disruption of such supplies due to unforeseen contingencies such as a war, it was felt that additional tankage should be put in place for an extra 45-day cover.
Currently, the tankage for LPG in the country can last for around 34 days. This is less than that of liquid petro-goods such as diesel and petrol, the stocks of which can last longer.
Senior oil industry analysts, however, are of the view that although there may be a case for some increase in LPG tankage capacity, the moot point is whether the country can really afford the luxury to go in for as much as a 45-day extra cover.
They point out that even during the height of the Iraq war when US and British troops were locked in a fierce battle for the control of Basra, Indian ships were loading LPG from a nearby port in Kuwait.
Besides no disruption in the supplies of petro-goods or crude were encountered during the earlier Iraq war either. Nor were any such disruptions seen in the Iraq-Iran war before that.