There are oil products in significant use in Hong Kong other than fuel oil, gas oil and naphtha. These are Jet A/Kerosene, petrol (Mogas), diesel fuel, kerosene and liquefied petroleum gas. The proposals in this paper deal only with fuel oil, gas oil and naphtha as these are considered the products most vital to Hong Kong's economic well-being. Annexed is a note on the other products, indicating also why they are relatively less significant. If the arrangements for strategic reserves proposed in this paper are successfully implemented, consideration could be given later on to extending them to these other products, particularly Jet A and kerosene.
Proposals
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Having taken into account all the circumstances described above and in consultation with the Oil Policy Committee, on which are represented the main oil importing companies, the China Light and Power Company Limited and the Hong Kong Electric Company, the conclusion is that strategic reserves of fuel oil (although not fuel oil for bunkering which is not an internal consumption requirement) gas oil and naphtha should be established voluntarily equivalent to 30 days worth of companies' imports minus their re-exports of those products during the previous calendar year and on the basis of a code of practice agreed between the Government and the oil importing companies.
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Consideration was given to making such reserves a mandatory requirement but this was judged undesirable for three main
reasons.
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First, it would introduce into the operations of the oil trade a degree of rigidity, the effect of which would be harmful rather than helpful. The trade is very much in a position of responding quickly to an ever- changing situation and the maximum flexibility is required in arrange- ments for shipping and supply. While the oil companies might make their best efforts to maintain reserves they could occasionally find themselves slipping below the reserve level for a short period while awaiting a new shipment. If they would be breaking the law (or at best involved in complicated exemption procedures justifying the situation to the Government), when this happened, the tendency might be for the companies actually to run down the level of imports so that the requirement for reserves (which would be based on the previous year's imports) would be correspondingly reduced. The effect might therefore be a worsening of Hong Kong's overall oil supply position.
CONFIDENTIAL ##