India is considering doubling to 10 million tonnes the capacity of strategic oil reserves it is building as an insurance against supply disruptions, to take advantage of current low interest rates and slush of funds with oil companies.

Ennore in Tamil Nadu and Paradip in Orissa are being considered as additional locations to Mangalore and Vizag, where 5 million tonnes storage capacity is being built at a cost of Rs 1,630 crore (Rs 16.3 billion) to stockpile the country's 15-day crude oil requirement, sources said.

Now, cess to fund crude reserves

"The US is expanding its 90 days cover of strategic stockpile to 120 days and we should also have a cover of at least 30 days," they said.

Besides the special purpose vehicle model where oil companies come together to form a company for building the strategic oil reserves, the petroleum ministry is mooting construction of the reserves on Build Own Operate and Transfer model followed for highway construction.

"Private firms may be asked to build and maintain the strategic reserves for the government and they are paid back a specified rate of return from the 10 paise per litre cess on petrol and diesel proposed for funding of the reserves," sources said adding Foresight of UK and GMR have envisaged interest in building reserves for the government.

Alternatively, Oil and Natural Gas Corp may be asked to build the reserves at Mangalore since it is already acquiring land for building a petrochemical complex near its subsidiary Mangalore Refinery and Petrochemicals Ltd. The reserves at other places can be built by the SPV floated by Indian Oil Corp.