NEW DELHI: The government has spared consumers from bearing the brunt of an additional cess to fund the country’s strategic crude oil reserve.

The 5 million tonne reserve, to be based in Visakhapatnam in Andhra Pradesh and Udupi and Mangalore in Karnataka, would be funded from the existing Rs 1,800 cess collected on every tonne of domestic crude oil.

Indian Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle created by Indian Oil Corporation through an equity infusion of Rs 1 crore, would implement the project.
ISPRL will now be under the fold of Oil Industry and Development Board (OIDB).

Officials said the change of ownership could be due to two reasons. This would facilitate funding besides, ownership of strategic reserves rests with the government in countries like the United States, Japan and Korea. Such reserves in Germany are held though a stock holding agency.

The Cabinet Committee on Economic Affairs (CCEA) in a meeting today decided that the equity held by IOC would be transferred to OIDB. Making the announcement, defence minister Pranab Mukherjee said the estimated cost of setting up 5 million tonne would cost about Rs 11,267 crore over nine years including cost of imported crude besides operational cost of about Rs 90 crore annually.

Officials said there would an inter-ministerial committee, headed by the secretary in the ministry of petroleum and natural gas, monitoring the release or sale of strategic crude oil. “Oil from the reserves would be released only in extreme conditions like natural calamity, disruption in supplies or any international event leading to scarcity or abnormal increase in prices,” said an official. Oil would be released to refineries at a price not less than the cost price.

Crude oil cess brings in Rs 5,000 crore annually into the government kitty with the total collection from the cess reaching Rs 51,008 crore up to March 2004.

The government had made available only a little over Rs 902 crore to OIDB till March 2004.
The 5 mt reserve will cover 15 days of demand and the government plans to later increase the reserves to 10 mt.