New Delhi, Jan. 6: The cabinet committee on economic affairs (CCEA) today approved the proposal for setting up strategic crude oil reserves of 5 million tonnes at an investment of Rs 11,267 crore.

The underground storage tanks are expected to be built over nine years and stockpile operations would cost about Rs 90 crore per annum, defence minister Pranab Mukherjee said after the CCEA meeting.

The tanks will be built at Mangalore and Vishakhapatnam by Indian Strategic Petroleum Reserves Ltd, a subsidiary of the Oil Industry Development Board. Indian Strategic Petroleum Reserves will implement the project and manage the crude reserves.

Indian Oil Corporation (IOC) was to float Indian Strategic Petroleum Reserves as a special-purpose vehicle to build the tanks, but the CCEA has decided that the equity held by IOC in the special-purpose vehicle will be transferred to the Oil Industry Development Board instead.

The board already has funds, which have flowed into its coffers because of the cess collected from oil companies. In line with the practice in the US, Germany and Japan where strategic reserves are financed by the government, it has been decided that IOC should not be burdened with additional financial responsibilities.

“The project will enhance the energy security of the country, particularly during short-term oil disruptions,” he said.

Petroleum minister Mani Shankar Aiyar said the oil board had enough funds and there was no need to increase the cess at this juncture. Since the operations will begin after nine years, it was not likely to affect the current crude oil situation, he added.

Teams comprising oil companies and petroleum ministry officials had visited the US to study the system of strategic reserves there before preparing the proposal.