Strategic crude oil reserves: Despite Niti Aayog’s advice, OilMin evasive on private investment

Petroleum minister Dharmendra Pradhan acknowledged the need for private investments in strategic storage but left their participation extent and timeframe vague.

Written by Amitav Ranjan | New Delhi | Published:November 30, 2016 2:27 am
crude oil, oil, oil price india, diesel price, petrol price, petroleum, india petroleum, crude oil trade, crude oil market, crude oil international market, fuel price Niti Aayog last September shot down ministry’s demand for Rs 10,000 crore of public money for building an extra 10 million tonnes of strategic reserves.

The Petroleum ministry remains evasive on permitting private sector equity in building strategic crude oil reserves despite Niti Aayog’s stricture that the former stick to the agreed plan to rope in private sector for additional tanking beyond the existing 5 million tonnes.

At a meeting on November 2, petroleum minister Dharmendra Pradhan acknowledged the need for private investments in strategic storage but left their participation extent and timeframe vague.

“The possibility of participation of private parties in capital expenditure at a later stage may be kept open so as to reduce the budgetary support of the government,” said the minutes of the meeting. His position has been incorporated in the draft Cabinet note, said sources.

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Niti Aayog last September shot down ministry’s demand for Rs 10,000 crore of public money for building an extra 10 million tonnes of strategic reserves as the proposal strayed from the ministry’s 12th Plan pledge to involve private sector in building and operating new tanks.

The government’s think-tank asked the ministry to explore roping in global crude oil majors who were keen to create storages in India rather than bank on government money as there was neither plan fund allocated for these projects nor any funding tie-up from other sources.

“Niti Aayog, therefore, is not in agreement with the proposal and recommends that the ministry ought to come up with a policy to encourage private sector investment instead of deploying government funds,” it had said.

Under Phase II, Pradhan wants state-owned Indian Strategic Petroleum Reserves Ltd (ISPRL) to build an additional 10 million tonnes of storage at Bikaner (5.6 million) in Rajasthan and Chandikhol (4.4 million) in Odisha to raise India’s crude oil cover to 99 days from current 75 (63 days at refinery plus 12 days strategic).

For this, he had asked the finance ministry to provide Rs 10,000 crore to ISPRL — a wholly-owned subsidiary of Oil Industry Development Board under the petroleum ministry — partly from plan funds and partly out of the oil industry development cess collected on crude oil production.

Sources said the Cabinet note puts more stress on government funding with the ministry proposing that the cost of 140-km pipeline from Bikaner cavern to Kandla-Bhatinda crude pipeline and the 260-km pipeline from Kandla-Bhatinda pipeline to Jaipur tap-off point be met through budgetary support.

Earlier, these pipelines were to be built by Indian Oil Corporation, they said.

The new proposal also reduces the time line for implementation of both facilities – Chandikhol to 64 months from previously envisaged 72 months and Bikaner to 96 from earlier 108 months. This, Pradhan told The Indian Express, was being done to take advantage of the low crude oil prices.

Under the first phase, ISPRL built 5.33 million tonnes storages at Visakhapatnam, Mangalore and Padur to provide 12 day supply cover. National oil companies of Abu Dhabi, Kuwait and Saudi Arabia and private major Shell have expressed interest in storing oil at these caverns.