Crude oil reserve cost up 25%

The project to construct a strategic crude oil reserve of 5.33 million tonnes is expected to see a cost escalation of about Rs 600 crore (Rs 6 billion) because of a spurt in prices of steel and cement, labour cost and general inflation.

The initial cost of the reserve, expected to become operational by 2012, was estimated at Rs 2,400 crore (Rs 24 billion), excluding the cost of crude oil.

"The cost is slated to move up by a minimum Rs 600 crore (Rs 6 billion) as prices of steel and cement have moved up since 2005-06 when the project was conceptualised. The labour cost has also seen an increase.

Strategic Petroleum Reserves Ltd, special purpose vehicle that is implementing the project, has asked Engineers India Ltd to work on the revised cost," said sources. EIL is the management consultant for this project.

Steel prices, which were ruling in the range of Rs 32,000-34,000 a tonne in 2005-06, went to a record high of Rs 50,000-51,000 tonne earlier this year. Though they have now cooled down to around Rs 30,000 a tonne on account of recession and slackening demand, the average cost will still work out to be higher.

Cement prices increased by nearly 50 per cent to Rs 4,400 a tonne since 2005-06.

They have softened in recent times on improved availability, but are still up by over 40 per cent, compared with 2005 levels.

The government is setting up the 5.33 million tonnes reserve to ensure energy security. Three locations have been selected for the purpose: Visakhapatnam (1.33 million tonnes), Mangalore (1.5 million tonnes) and Padur near Udupi (2.5 million tonnes).

The storage will be in addition to the existing storage of crude oil and petroleum products with the oil companies and would serve as a cushion in response to external supply disruptions or abnormal price increase.

A government appointed committee would release crude oil from the reserve as and when required.

The country meets over 70 per cent of its crude oil requirement through imports.

The reserve would be kept in underground rock caverns or concrete structures.