The Cabinet on Wednesday approved construction of strategic oil storage facilities at three locations on east and west coast at an estimated cost of over Rs 1,600 crore (Rs 16 billion).

Strategic crude oil storage facilities will be built at Mangalore in Karnataka and Vizag in Andhra Pradesh. The third location is in Karnataka, further south of Mangalore, official sources said in New Delhi.

"The three locations will stockpile 5 million tonnes of crude oil reserves, enough to meet the country's 15 days requirement," they said.

India imports 70 per cent of its 105 million tonnes crude oil requirement every year and strategic storages are being planned in case of disruption in supplies.

Indian Oil Corporation will float a new company which would build, import and maintain the crude oil stocks.

The company will issue bonds backed by central government guarantee to raise Rs 1,225 crore (Rs 12.25 billion) required to build the tanks.

It will also incur a one-time expense of Rs 4,500 crore (Rs 45 billion) on crude imports and an annual maintenance cost of Rs 29 crore (Rs 290 million).

Recovery would be through an increase in price of each petroleum product by 20 paise per litre to retire the bonds and meet the annual costs, they said.

Currently, the total crude oil storage capacity with domestic refineries is 19 days (5.7 million tonne). Besides, the country at present has tankages to provide for 45 days' cover of petroleum products.

Of the proposed tankage, 1.5 million tonnes will be built at Mangalore and one million tonnes at Vizag. The location south of Mangalore will have storage capacity of 2.5 million tonnes.