The public-private partnership for construction of strategic petroleum reserves (SPR) would reduce the burden on the government in making upfront investments and the overall load on the oil sector, according to a detailed report prepared by global consultancy firm KPMG for the Petroleum Ministry and Indian Oil Corporation.
The report lines up four options for the government for the public-private partnership model, which take into account various exigencies that may crop up while formulating plans for the reserves.
The KPMG report refers a local trading model, which provides priority access to an oil trading company to trade in spot market in India with trading profits funding the strategic stockpile. This model would facilitate commercial funding of the SPR through a portion of the trading profits generated by the company in the 30 million-metric-tonne (MMT) Indian spot market.
However, with an average trading profit of $1-2 per barrel, the trading company would be able to fund 1.2 to 2.5 MMT stockpile by selling 10 MMT in the spot market. Therefore, government funding to the tune of Rs 300 to Rs 600 crore per annum would be needed to fund the remaining proportion of the stockpile.
The report also lists an international trading hub model whereby an international upstream/trading company will be invited and incentivised to set up a crude storage supply in the country for supplying to Indian sub-continent and Asian markets.
A minimum stock would have to be maintained by the company as stockpile. The company would engage in physical trade of crude to cross-subsidise 5 MMT strategic stockpile. Trading profits would be generated through price arbitrage/position trading based on crude price movements. In addition, the company would also supply crude to the refiners in domestic and international markets.
There would be two addressable markets for the hub: domestic market covering supplying crude to domestic refineries and the Indian spot crude market. Trading hub would also service other Asian countries due to India's strategic location. Facilities are to be built and operated by a third party under a built-operate-lease-transfer scheme.
Another option available entails setting up of an agency with ownership and management of strategic stockpile and funded through contribution from the petroleum sector, government pass-through to consumers or their combination. It is a non-commercial model where an agency would be formed for managing strategic stockpile.
The agency would be government controlled and all key sector participants would be mandated to take its membership. SPR in this instance would be funded through cess, the sector and government fundings.
The storage hub model calls for an international upstream oil company to set up a crude storage hub in India for supply to the Asian markets and to fund strategic stockpile. High storage cost of existing hubs like Singapore would make India an attractive destination for traders, provided port and shipment facilities are geared up to enable traders deliver the oil in spot market.
E-mail Deepak Joshi: email@example.com