Separate Corpn Should Handle Strategic Oil Reserves: EIL

New Delhi, October 22: | Updated: Oct 23 2002, 05:30am hrs
Consultancy firm, Engineers India Limited (EIL), has recommended setting up a new corporation for establishing strategic crude oil reserves in the country.

In order to meet the operating expenses of this corporation, EIL has suggested imposition of a 10 to 13 paise per litre cess on domestic consumption of petroleum products, which stands at around 100 million tonne per annum.

The government, which is in the process of framing a policy on building strategic crude reserves, had entrusted EIL with the task of preparing a detailed feasibility report (DFR) on establishing strategic crude oil storages in the country. EILs report is currently under consideration with the government.

Considering the huge capital cost involved in creating strategic storage of crude, EIL has also suggested a funding model for this corporation.

According to DFR prepared by EIL, this corporation would require equity contribution from the government and other developmental agencies. The debt portion of the capital could be raised either from international markets or by issuance of tax-free bonds in the domestic market. While the operating expenses of the corporation be covered by either levying way of a cess or additional excise duty on consumption of petro products, the working capital could be raised by way of domestic borrowings or revolving international credits.

EIL has recommended creation of crude oil strategic storage facilities at Mangalore and Visakhapatnam. Petroleum ministry officials said that in both these places, technical feasibility has been established for provision of underground rock cavern type storage.

Questioning the rationale behind creating a separate corporation for handling strategic oil reserves, former diplomat, Prakash Shah said the funds for this purpose should come directly from the government. Mr Shah, who was also the petroleum advisor to Indian government in Iran for the Gulf region, is against imposition of any new cess on petroleum products.

We already have a petroleum cess for development of roads. You cannot keep on taxing the consumers by repeatedly levying such cess. Creating a new company with equity and debt does not make sense to me. I feel that funds for this purpose should come directly from the Budget, he added.

Mr Shah is of the view that such an important issue should not be dealt in a rush-hush manner.

There are no two views that we should have strategic oil reserves in the country. But there is no need to create a separate organisation for doing this. I feel that there should be a proper debate on this matter as it concerns national security. The recommendations of the EIL report should be made public and circulated for views of defence and energy experts, he said.

India consumes 100 million tonne of petroleum products every year. While there has been a continuous growth in the consumption of petroleum products, the domestic crude production has remained stagnant at about 33 million tonne per annum for the past several years. With increase in the countrys refining capacity, imports of crude oil have further gone up.

Given the increased dependence on import of crude oil primarily from West Asia, which is politically volatile, it is felt that in the event of any hostilities in the West Asia, the import of crude oil would be highly vulnerable. To safeguard against such disruptions and to take care of the wide fluctuations in the price of crude in the international oil markets, the government has taken a decision to put up strategic storage for imported crude oil equivalent to 45 days.

EIL, in its report, has suggested creation of strategic storage of crude oil for 15 days cover in the first phase. This issued is under consideration with the government, a senior petroleum ministry official said.

It is significant to point here that most of the developed countries, which depend on import of crude oil and petroleum products are now holding strategic reserves for both. These countries pursue petroleum stockpiling to prevent the large market confusion that can be caused by unexpected events like international disputes or accidents.

After the first oil crisis, the International Energy Agency (IEA) was established in 1974 by major oil consuming countries including the United States, United Kingdom, Canada, France, Germany and Japan. IEA has laid that all member countries maintain an emergency stockpile level equivalent to 90 days supply of imported oil.