Sources say that India could charge gas consumers to fund its planned $42 billion fuel reserve.
Two sources who have direct knowledge of this matter say that India could impose a charge on consumers of cooking gas and natural gas to fund a $42 billion strategic reserve. This is after the disruptions caused by the Iran War exposed the supply chain's vulnerabilities.
Two sources claimed that the plan would expand India's strategic reserve beyond crude oil. Stockpiles are designed to cover around two months of demand for crude and liquefied gas and about six weeks for liquefied petrol gas or cooking gas.
The plan would fund the infrastructure for cooking and natural-gas storage by charging users a fee that could generate up to $1.5 billion per year, according to the two sources.
The sources stated that the Indian Ministry of Petroleum and Natural Gas was considering a tax of 1.29 Indian Rupees ($0.0136), per kilogram of LPG. This would raise approximately $460 million annually based on the current consumption and would add 18 rupees (about 18 cents) to the price of a standard domestic cooking gas cylinder.
The sources stated that the ministry proposed a tax of 1.43 rupees for each standard cubic metre. This would generate about $1 billion per year at the current consumption level.
The exact method of collection was not clear. Sources said that the proceeds will be used to fund the infrastructure for natural gas and cooking fuel storage, and the crude reserves and strategic fuel inventory will continue to be financed by federal government.
Sources requested anonymity as the proposal was being discussed in various ministries and had not yet been approved by the cabinet of Narendra Modi.
Sources said that the proposed levies will add about 2% on household gas bills. The move would be politically sensitive for Modi’s government, as it would increase the costs of millions of consumers in an environment where fuel prices are high.
The proposed funding mechanism, which includes levies on natural gas and cooking consumption, was not previously reported.
The Ministry of Finance and the Ministry of Petroleum did not reply to our requests for comments sent on Tuesday.
MULTI-FUEL STRATATEGIC RESERVES
Two sources estimate that the decade-long programme of strategic reserves will cost $42 billion. More than half will be used to build storage infrastructure, and the rest for stocking up the reserves.
The Indian government has estimated that it will require an additional 28 million metric tonnes of crude storage, 9?million tones of LNG storage, and?4 millions tons of LPG over the next ten years.
Sources said that the plan was drafted after the Middle East Crisis caused supply disruptions, which increased import costs. This highlighted India's dependence on imported oil.
India is the third largest oil consumer and importer in the world. It buys almost 90% of its crude oil from abroad, exposing it to the chaos caused by the U.S. and Israeli war against Iran, and the subsequent disruptions to oil and gas shipments from Gulf producers into global markets.
New Delhi has a government-owned storage capacity of 5.33 million tonnes, with another 6.5 millions tons being built. However, it lacks strategic reserves for LPG or LNG.
The country has less emergency fuel than other major Asian countries. Government-controlled reserves currently cover less than 10 days of demand, compared with more than 100 days in Japan and South Korea.
(source: Reuters)
