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It will cost half for India to build and raise strategic crude oil reserves: ASSOCHAM paper
It would take just about half in building strategic crude oil reserves throwing a tempting opportunity for India to increase the storage capacity by raising investment multi-fold in physical infrastructure besides signing forward contract with the exporting countries.

"It is once in several decade opportunity for India to scale up its strategic oil reserves at much higher level than even three months' consumption, which itself is a long way to go for us at this point of time," a paper by industry body ASSOCHAM has pointed out.

India's crude oil import bill in November 2014 as compared to May is giving a saving of about USD three billion per month on this head as the price of Indian basket of the fuel has dropped to less USD 60 per barrel from over USD 106 per barrel about six months ago. It will cost India 40 per cent less to build strategic energy reserves at the present prices.

"But to take advantage of the situation, we need to build physical infrastructure which cannot be built over night and would take at least a few months even if the brick is laid today. Who knows by the time our storage capacity for the reserves is ready the crude would not have bounced back. In any case the capacity has to rise, though some initiatives are underway", says the ASSOCHAM paper according to a statement issued by the industry body.

The paper further say that Prime Minister Narendra Modi's Office should quickly get the viable projects examined and take quick decisions while those in the private sector should be given the support in terms faster RBI clearances and easier tax administration

Presently, there are three strategic reserves ? one in Andhra Pradesh and two in Karnataka and four more facilities are proposed at Bikaner in Rajasthan, Rajkot in Gujarat, Padur in Karnataka and Chandikholein Odisha.

The government may be planning to spend about Rs 5,000-6,000 crore on building these capacities. Given the opportunity, the government must commit and increase this investment at least three-four times to Rs 15,000-20,000 crore and let the oil marketing companies invest in the same along with the special purpose vehicle- Indian Strategic Petroleum Reserves Ltd  (ISPL). The resources at the command of ISPL should be increased mani-fold. 

According to the  2001 agreement, all member countries of   the International Energy Agency must have a strategic petroleum reserve equal to 90 days of prior year's net oil imports for their respective country.

"All out efforts must be made to first reach this benchmark and then move further so that we ring-fence ourselves from the energy shocks and do not indulge in splashes during good times", ASSOCHAM Secretary General D S Rawat said.

Given the fact building of physical infrastructure takes long time, we must also go in for, on a larger scale, forward commercial storage agreements in countries from where we ship crude into our country. The refineries, both in the public and private sector, should be aggressively exploring such opportunities. Of late, such arrangements have been witnessing increased movements.

Alongside this, PSUs in different sectors like Chemicals and Fertilisers, Steel, Coal, Mines and the Finance should encash the situation and scout for global assets in Africa, Australia, CIS countries and Indonesia in different commodities including coal fields, natural gas, coal and aluminum.  

Now is the time to buy these assets, as we have the resources backed with comfortable foreign exchange reserves and tempting prices. Moreover, China may even go slow in its global hunt for the strategic assets as it is witnessing slowdown home.

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