Cabinet approves oil reserves plan

The Union Cabinet approved the proposal for setting up strategic oil storage facilities at three locations on the east and west coasts, at an estimated cost of Rs 1,650 crore. It also cleared the Special Economic Zones (SEZ) Bill, which aims to provide a single-window mechanism for clearance of proposals at the zonal level.

Two of the strategic storage facilities for 5 million tonnes of crude, sufficient for about 15 days' consumption, will be located near Mangalore. While the third will be at Visakhapatnam.

In addition to the capital cost of Rs 1,650 crore for the construction of the cavern storage, Rs 5,000 crore will be needed for the purchase of 5 million tonnes of crude. The annual cost for servicing the debt and operations will be about Rs 800 crore. The Cabinet decided that the financing of the project would be firmed up by the petroleum ministry in discussion with the finance ministry.

This strategic storage will be in addition to the existing storage facilities for crude and petroleum products and will provide an emergency response mechanism in case of short-term supply disruptions.

At around 69 per cent, India has high oil dependency. And about 67 per cent of crude imports come from West Asia. During 2002-03, about 82 million tonnes of crude, valued at about Rs 76,200 crore, was imported into the country.

The International Energy Agency (IEA) requires oil-importing member countries to hold stocks equivalent to 90 days of net imports. Though India is not a member of IEA, after the setting up of the proposed strategic storage, it will also have a gross storage capacity in line with the IEA guidelines.

According to an earlier proposal, Indian Oil Corporation was to float a special purpose vehicle to build, import and maintain crude stocks. The company would have recovered its costs through an increase in the price of each petroleum product by 20 paise a litre.

In the SEZ Bill, also cleared by the Cabinet today, the commerce ministry proposed additional tax benefits for these zones. Among other things, the ministry wants the 5-year tax holiday to continue.

The Bill also provides for taxation of only 50 per cent of the income of SEZs in the next five years against the present provision of 2 years. Moreover, there is a provision for 50 per cent tax exemption on re-investment of profits for 10 years, up from the present three years.

To attract long-term investments for the development of infrastructure in these zones, the Bill proposes zero tax on distributed profits for companies engaged in the development, operation and maintenance of SEZs. The Central legislation for SEZs will supercede the existing ones at the state level.

"Of the 23 SEZs in the country, only eight are functional while those at Indore, Jaipur and Kolkata are expected to commence operations soon. These units have achieved an economic growth of 63 per cent as against the average of 7 per cent for the rest of the country," Parliamentary Affairs Minister Sushma Swaraj said.

SEZ developers and financial institutions had sought a stable framework to cover legal and regulatory risks. Four states have already enacted separate legislation providing for exemption from all state levies, taxes and duties, in addition to the delegation of powers to the development commissioner of the zones.

The Cabinet also gave a post-facto approval to the agreement on visa-free travel between India and Thailand for holders of diplomatic and official passports. The agreement was signed by Prime Minister Atal Bihari Vajpayee during his visit to the country in October last year.

The Cabinet also approved the signing and ratification of a bilateral investment promotion and protection agreement between India and Mozambique. The agreement, which provides for the extension of national treatment and most favoured nation status, has been signed with 56 countries and finalised with 7 others.