New Delhi, February 2, 2017

India is 81% dependent on imports to meet its crude oil need

Encouraging foreign firms to take capacity in India's strategic oil reserves, Budget 2017-18 has exempted them from paying income tax on sale of oil left after the contract for storage in underground caverns has ended.

Finance Minister Arun Jaitley, in the Budget presented on Wednesday, exempted income of foreign company, which books capacity in the strategic storages, from the sale of leftover stock.

Till now, exemption from payment of income tax was available only during the duration of the contract a company entered into for hiring the storage caverns.

Oil Minister Dharmendra Pradhan backed the move on social media platform Twitter, saying: Tax Exemption on sale of leftover crude oil stock post contract expiry, will encourage foreign companies to use Indian Strategic Reserves.

 In a bid to insulate the country from volatility in the global oil market, the government will build two more underground crude oil storages in Odisha and Rajasthan.

Jaitley said the new facilities at Chandikhol in Odisha and Bikaner in Rajasthan will have a capacity to stock 12 million tonnes of oil.

India has already built underground storages in rock caverns at Visakhapatnam (1.33 million tonnes), Mangalore (1.5 MT) and Padur (2.5 MT).

"For strengthening our energy sector, the government has decided to set up Strategic Crude Oil Reserves. In the first phase, three such reserves facilities have been set up. Now in the second phase, it is proposed to set up caverns at two more locations, namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take our strategic reserve capacity to 15.33 million tonnes," Jaitley said in his Budget speech.

Strategic storages provide a country with two-fold advantage. Firstly it ensures utilisation of reserves in times of high oil and gas prices and secondly they can be used in the event of supply disruptions following unforeseen events like a natural disasters or a war like situation.

The storage at Chandikhol will be an underground rock cavern while the one at Bikaner will be an underground salt cavern.

"With this, India will move to the high energy table of the world," Pradhan told PTI here. "We have a lot of learning from the first phase construction. We plan to do the second phase in 3-4 years."

Last week, UAE's national oil company ADNOC signed an agreement to hire half of the capacity of India's maiden strategic oil storage at Mangalore.

India is 81 per cent dependent on imports to meet its crude oil needs.

Abu Dhabi National Oil Company (ADNOC) will hire half of the 1.5 million tonnes Mangalore facility, officials said.

An agreement to this effect was signed between Indian Strategic Petroleum Reserves Ltd (ISPRL) - the special purpose vehicle building the oil storages, and ADNOC after talks between Prime Minister Narendra Modi and Abu Dhabi's Crown Prince Sheikh Mohamed bin Zayed al-Nahyan.

Under the agreement, India will have first right to use the stored oil in case of an emergency, while ADNOC would use the facility to store oil for trading purposes.

ADNOC will stock 0.75 MT or 6 million barrels of oil in one compartment of Mangalore facility. Of this, 0.5 MT will belong to India and it can use it in emergencies. ADNOC will use the facility as a warehouse for trading its oil.

The 1.33 MT Visakhapatnam storage and 2.5 MT Padur stockpile together with 1.5 MT Mangalore storage will be enough to meet nation's oil requirement of about 10 days.

Pradhan said Congress-ruled Karnataka government has agreed on waiving VAT on the crude oil imported for the strategic storage, which UAE wants to use to stock oil when prices are low and supply to its customers when rates are good.

[The Business Standard]