Govt should stock oil reserves post global oil prices cut

New Delhi, Nov 30 (UNI) After the decline in international crude prices to 60 dollars per barrel from 75 dollars per barrel there is an opportunity for the government to negotiate supplies with oil producing countries to build stocks of oil and contribute to the country's oil security.

Crude stocks would hold the nation in good stead to hedge against future change in oil prices and insulate oil companies from the brunt of increase in prices.

The government has responded to the lowering of international prices of crude by mandating a price cut at the retail level of petrol by Rs 2 per litre and that of diesel by Re 1 per litre from yesterday.

Industry body Ficci feels that a better course of action in the post- administered pricing mechanism (APM) regime, would be to build up strategic reserves of about 15 days to begin with and alongside give a fiscal and administrative fillip to commercial and industrial use of non-fossil fuels.

The avowed objective of dismantling the APM was to allow freedom to oil companies to fix retail prices with a view to ensure better margins and better returns for the refining and marketing companies.

The government must also implement the recommendations of the Rangarajan Committee report, which suggested changing over to trade parity prices. It should rationalise state levies, make all oil products VATable and move over to a Goods and Services Tax (GST) by 2010, Ficci said.

In India, crude oil is the second largest commercial fuel accounting for 27 per cent after coal (61 per cent) followed by natural gas (nine per cent), hydropower (two per cent) and nuclear power (one per cent). These commercial fuels constitute about 68 per cent of the energy consumed in the country.

Transportation is by far the largest oil-consuming sector accounting for over 60 per cent of the total consumption.

The chamber has suggested that India could aim at the International Energy Agency (IEA) stipulated crude stock level of 90 days. This could be done in phases in line with the prevailing prices and expectations on the price front, starting with a stock of 15 days.

As the Cabinet Committee on Economic Affairs has already approved building five million tonnes of strategic crude oil reserves, the government should now take initial steps in this direction, it added.

According to Ficci estimates, in order to acquire a 15 days stock of 5.4 million tonnes of crude oils at the current rate of 60 dollars per barrel, the country would need about Rs 10,800 crore. To build storage capacity of this order of strategic oil reserves, upwards of Rs 1,000 crore would be required.

A consortium involving the public and private sector, headed by the Ministry of Petroleum, should undertake the management of crude stocks. A body to organise the maintenance and expansion of the reserves should also be set up.

For a country like India, it would be important to store crude oil rather than petroleum products, as it has been seen that for large economies with a complex consumption patterns it is better to store crude rather than petroleum products, the chamber said.

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