COVA in a nutshell
The Netherlands Petroleum Stockpiling Agency (COVA) holds strategic oil stocks for the Netherlands. It does so, by law, on the instructions of the Minister for Climate and Energy. The strategic oil stocks can be deployed during national or international oil shortages in order to limit economic damage.
COVA is also part of the national crisis response organisation, as laid down in the National Oil Crisis plan LCP-O and is responsible for the purchase, sale and storage of crude oil and oil products. COVA fulfils its stockholding obligation in compliance with the requirements set by the International Energy Agency (IEA) and the European Union (EU).
In the Netherlands, these requirements have been laid down in the Petroleum Products Stockpiling Act (Wva). This Act lays down what the national oil stock obligation should be and what part of the oil stock the oil-business community must keep. COVA is required to hold the difference, being by far the largest part, of the national compulsory stock. COVA is obliged to maintain the compulsory stock at the lowest possible cost and with minimal storage risks in such way that, if necessary, timely deliveries to the market can be made and changes in the stockholding obligation can be responded to flexibly.
The duties assigned to COVA by the Ministry of Economic Affairs and Climate Policy also include Knowledge Management of the oil sector. COVA has an active role in the oil and oil storage markets and always has the latest market information and outlook at its disposal. It uses these in monitoring and responding to long-term developments. This information is shared with the Ministry of Economic Affairs and Climate Policy as input for the preparation of government policies.
COVA is a not-for-profit foundation with a statutory task. The Minister for Climate and Energy bears the ultimate responsibility for COVA and determines its articles of association and rules of procedure. Its Board is appointed by the Minister and consists of four members. The Board appoints a Managing Director. The Managing Director is responsible for COVA’s day-to-day management and for implementing the policies approved by the Board. This structure guarantees COVA’s independent position in the Dutch oil market.
COVA has a team of staff members working in the areas of Strategy, Operations, Stock Accounts, Finance, Control, IT, Knowledge Management and Secretarial Support. Each year, the Board submits the budget, the annual report and the annual accounts to the Minister for approval. COVA is funded from the stockholding levy imposed on end users of transport fuels.
Based on its societal role, COVA endorses the principle of transparency towards stakeholders. COVA also values transparency within its own organization and has a code of conduct.
COVA also must comply with the Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act (WNT) and is exempt from corporate income tax. The Minister has designated COVA as an Operator of Essential Services in the context of the Network and Information Systems Security Act (Wbni).
Laws and regulations
Measures taken during an oil crisis are in principle taken at the level of the IEA (OECD) or EU. The IEA coordinates the handling of the crisis. A disruption of more than 7% of global oil supply automatically triggers the IEA crisis mechanism, The IEA has an initial Contingency Response Plan (ICRP) for the first 30 days of a disruption and Coordinated Emergency Response Measures (CERM) for longer supply disruptions. IEA countries are requested to put a proportional part of the shortfall on the market, either from their own stocks or by restraining domestic demand. The European Commission advises the EU Member States on the supply measures to be taken.
The international request is received by the Minister for Climate and Energy. In consultation with COVA, the Minister decides on the deployment of (parts of) the statutory stock. This may also involve a transfer of stocks held abroad to the Netherlands. In addition, the Minister may requisition oil products and take distribution measures. After consultation with the Minister of Infrastructure and Water Management and the Minister of Justice and Security, the MinIster for Climate and Energy Policy may take secondary measures, for example a driving-ban on Sundays.
The global oil crisis in 1973-1974 led to the formation of the International Energy Agency (IEA) under the auspices of the Organization for Economic Cooperation and Development (OECD). All the associated industrialised countries became obliged to maintain emergency oil stocks for crisis situations. The Netherlands enacted the Petroleum Products Stockpiling Act (Wva).
In order to meet its stockholding obligations, the Dutch government in 1978 set up the interim agency ICOVA: the Interim Netherlands Petroleum Stockpiling Agency (Stichting Interim Centraal Orgaan Voorraadvorming Aardolieproducten). If oil companies are unable to fulfil their obligation, they can transfer this obligation to ICOVA.
In 1987, the Wva was amended to provide for a government-controlled agency. The independent Netherlands Petroleum Stockpiling Agency (Stichting Centraal Orgaan Voorraadvorming Aardolieproducten (COVA)) replaced the interim agency ICOVA and started holding oil stocks on the instructions of the government.
Until now, there have been five occasions on which the IEA countries made up oil shortages with a collective action in order to restore economic confidence in the oil market. Most recently two collective actions were announced in 2022 due to the Russian invasion of Ukraine and its effect on the oil market. In March the Netherlands participated with approximately 0.8 mln barrels out of the obligated industry stocks followed in April by 1.6 mln barrels of gasoil from the COVA stock. Other collective actions happened during the Gulf War (1991), after Hurricane Katrina (2005) and as a result of the civil war in Libya (2011). A collective action was not considered necessary after the drone and rocket strikes on the Saudi oil installations at Abqaiq (2019), due to the confidence in the available stocks of the collective IEA countries.
All the IEA members or EU Member States fulfil their stockholding obligation in different ways: through agencies (such as Belgium), state entities (such as the United States), the oil sector (Sweden) or a dual system such as the Netherlands. All the entities cooperate intensively in order to cope with an oil crisis collectively. They exchange experiences and best practices during the Annual Coordinating Meeting of Entity Stockholders (ACOMES). Under the direction of the Ministry of Economic Affairs and Climate Policy, joint crisis drills organised by the IEA take place every two years, and consultations are held with the IEA and the EU (Oil Coordination Group).