Finance Minister Arun Jaitley Friday announced that Centre will build two more strategic oil reserves with a combined capacity of 10 million metric tonnes (MMT) — at Chandikhole in Odisha and at Bikaner in Rajasthan.
The government has already built three such reserves at Visakhapatnam, Mangalore and Padur in Kerala — with a combined capacity of 5.33 MMT. These three reserves have the individual capacity of approximately 1.33 MMT, 1.5 MMT and 2.5 MMT, respectively.
“To boost our energy sector, the government has decided to set up strategic crude oil reserves. In the first phase, three reserves were set up. In the second phase, two more caverns are proposed. This will take our capacity to 15.33 MMT,” he said.
The government strategic reserves in India are run by the Indian Strategic Petroleum Reserves Ltd, an SPV set up by the Oil Industry Development Board, under the petroleum ministry.
In October 2016, Mangalore Refinery and Petrochemicals Ltd (MRPL) received the first parcel of crude oil for delivery into the Mangalore reserve, making it the second cavern after Visakhapatnam to be active. The Visakhapatnam facility was commissioned in June 2015.
Engineers India Limited (EIL) has been working as the project management consultant for all the three projects. On January 25, India signed a deal with the United Arab Emirates that allows the Gulf OPEC country to fill half of the underground crude oil storage facility of ISPRL at Mangalore. Therefore, the UAE’s Abu Dhabi National Oil Company will store about 6 million barrels of oil at Mangalore.
Considering the wide range of use of LNG (Liquified Natural Gas) as fuel as well as feed stock for the petro-chemicals sector, Jaitley also reduced the basic customs duty on LNG from 5 per cent to 2.5 per cent. Moreover, the Budget also announced tax exemption on the income of any foreign oil company that earns it from the sale of leftover crude oil from its strategic reserves to any Indian citizen. However, this exemption would be available to the company from 2018-19 only.
Currently, such foreign companies get income tax exemption only when the oil sale is pursuant to an agreement entered into by the Central government with regards to “national interest”. The benefit of exemption is currently not available to sale out of leftover stock of crude after the expiry of the said agreement.
“Given the strategic nature of the project benefiting India to augment its petroleum reserves, it is proposed to insert a new clause (48B) in section 10 (of the Income Tax Act, 1961) so as to provide that any income accruing to a foreign company on account of sale of leftover stock, if any, from a facility in India after the expiry of an agreement … shall also be exempt subject to such conditions as may be notified by the Central government,” the budget stated.
This amendment will take effect from April 1, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years.
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