The Telegraph
Since 1st March, 1999
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Cabinet call for oil buffer plan

New Delhi, Sept. 14: The government is moving ahead with an ambitious plan for creating a strategic oil reserve. The petroleum ministry has almost finalised the Rs 2,000-crore proposal for the first phase of the project, which will soon be sent to the cabinet for its approval.

Petroleum secretary B. K. Chaturvedi told The Telegraph that the committee of secretaries had cleared the proposal and recommended that the defence ministry and other security agencies be consulted on the issue. “These talks have been completed and we are in the process of preparing the final note that will have to be sent to the cabinet,” he said.

The petroleum ministry is of the view that since huge funds are required for the project, it should be taken up in phases. The first phase envisages a strategic reserve facility of 5 million tonnes that can last the country 15 days in case of an emergency. The experience gained in managing this 15-day stock can then be used to gradually increase the capacity to a 45-day buffer.

While Rs 1,500 crore will be required for setting up the underground tankage, another Rs 5,000 crore will be needed to buy 5 million tonnes of crude at a little over $26 per barrel. An additional expenditure of Rs 30 crore will have to be incurred in operating costs each year.

Indian Oil Corporation will be entrusted with the task of setting up the tankage and managing the strategic reserve.

While 2.5 million tonnes of this capacity will be created at Rajkot in Gujarat, another 1.5 million tonnes of tankage will be created at Mangalore. A storage space of one million tonnes will be built at Vishakhapatnam, which will be used to feed the Indian Oil Corporation refineries at Haldia, Barauni, Bongaigaon and Chennai. Hindustan Petroleum’s Vizag refinery will also source its crude from this stock.

Since the entire tankage will be underground, various soil and rock samples of the region have already been tested to finalise layout plans.

Two options have been proposed for financing the plan. The first envisages that the capital investment will be made through a one-time budgetary grant by the government and the operating expenses met through the cess that is already being levied on crude oil.

The second option proposes that the funds required for capital investment and carrying cost of the inventory be raised through an across-the-board cess on petroleum products on the lines of the road cess being levied on the national highway project. The size of this cess works out to around 10 paise per litre if it is levied on all products or 20 paise per litre if it is imposed only on petrol and diesel.

Strategic reserves, if used judiciously, could also be used for buying crude when prices are low and dipping into these stocks when international prices spiral out of control.

The idea has been borrowed from the US, Germany and Japan. That China also plans such a storage facility, based on the Japanese model, has also been kept in mind.

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