IIMB News

CASE CO-AUTHORED BY IIMB FACULTY IS NAMED BEST CASE BY AIMA

A case study written by Prof. Sankarshan Basu of IIM Bangalore and Prof. Prabina Rajib of VGSoM, titled ‘ISPRL Managing India’s Sovereign Crude oil Price Risk’, has been named ‘Best Case in the AIMA ICRC Case Writing Competition’.

Abstract of the case: Countries with limited domestic crude oil production capacity depend heavily on import. Increase in crude oil price drags GDP down due to increased import bill. Higher crude import bill also has spiralling impact on domestic inflation. In addition, geo-political disturbances also create supply bottleneck impacting crude oil availability.  To manage crude price risk and smoothen crude oil availability, IEA has mandated member countries to maintain strategic reserve of 90-days of crude oil inventory. Understanding the need of energy security, the Government of India incorporated Indian Strategic Petroleum Reserves Limited (ISPRL) in 2004 to focus on the energy security.  To maintain crude oil inventory, ISPRL has constructed underground rock caverns at three places in India to store crude oil. Creation of physical infrastructure associated with strategic storage facilities requires not only huge upfront investment but also requires huge investment in buying and storing crude oil. Hence, this case covers different aspects of creation, maintenance of these strategic reserves and help in quantifying the impact of crude oil price increase on GDP when countries do not have strategic reserve.