The Hindu : Oil cess planned to fund strategic reserves

Online edition of India's National Newspaper
Thursday, Jan 22, 2004

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Oil cess planned to fund strategic reserves

By Our Special Correspondent

NEW DELHI, JAN. 21. The Government is considering the possibility of a marginal cess on petroleum products to fund the proposed strategic crude oil reserves being set up to prevent the country from facing any supply shocks. The cess is one of the options being examined along with the prospect of a budgetary grant or funding by the Oil Industry Development Board.

Disclosing this here today, the Petroleum Secretary, B.K. Chaturvedi, said the cess would not be more than 15 paise a litre but would help build the reserves, which were expected to cost Rs. 1,650 crores in the first phase alone. The entire funding issue was, he said, being examined by the Petroleum Ministry in consultation with the Finance Ministry.

Speaking at a workshop on strategic oil reserves organised jointly with the International Energy Agency (IEA), he said the Indian Oil Corporation would float a special purpose vehicle (SPV) for building the five million tonnes reserves in rock caverns and locations already selected. The German model of building and maintaining the reserves through a state-owned company was being followed.

Earlier, the Petroleum Minister, Ram Naik, said India would work closely with the IEA in building up the 15 days' reserves, which would be expanded to 45 days stockpile by 2008. Giving the rationale for the strategic oil reserves, he said, 67 per cent of the country's crude oil requirements came from West Asia and the general political instability in the region was a cause of anxiety from the oil supply security perspective. Besides, the possibility of supply disruptions could seriously affect the developing economies. "The world has already witnessed about 20 oil disruptions, in the past 52 years, of various sizes and durations affecting the oil importing economies."

In addition, he highlighted India's increasing oil dependence in the backdrop of higher oil import dependence of several other economies in the region. "In the absence of major oil discoveries, India would then need to progressively compete with other Asian countries in a tighter oil market seeking supplies from the same set of producers."

The issue of growing import dependence was emphasised by the IEA's deputy executive director, Ambassador William Ramsay, who said that India may have to import as much as 94 per cent of its oil needs by 2030 from less than 70 per cent now unless fuel efficiency and alternative sources of energy were encouraged. The IEA, a Paris-based organisation of developed countries, has estimated that world oil demand will increase from 75 million barrels to 120 million barrels a day in 2030.

Later, Mr. Naik told reporters that the ONGC Videsh Limited (OVL) had been given permission to expand its holdings in Sudan by acquiring a 11 per cent shareholding in another oilfield at a cost of $ 125.4 million. The proposal was cleared by the Cabinet Committee on Economic Affairs at its meeting yesterday. India may be able to utilise over one million tonnes of crude annually from these blocks. It had been decided that the total exposure of OVL in Sudan would not exceed $1 billion. The OVL had made substantial investments in that country with a 25 per cent equity stake in the Greater Nile Oil Project at a cost of $ 699 million and further investment of $ 136 million in two more blocks.

He hoped that high international crude oil prices would ease as soon as the seasonal winter demand for oil subsides in western countries. This had led to a hike in domestic prices of diesel and petrol last month. Crude oil prices rose globally due to winter demand, increased buying by the U.S. to build reserves and lower than expected Iraqi oil production.

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