 "MEIL secures bid for India's first private strategic petroleum reserve")
Megha Engineering & Infrastructures Ltd (MEIL) secured a bid from Indian Strategic Petroleum Reserves Ltd (ISPRL) to build India’s first private-sector strategic petroleum reserve (SPR), according to a report by The Economic Times.
MEIL won the mandate to build and operate a 2.5 million metric tonne (MMT) SPR at Padur, Karnataka. The ₹5,700 crore project will have an estimated ₹11,020 crore crude oil filling cost at current prices.
As reported earlier by Business Standard, ISPRL had invited bids from domestic and global players for the second phase of SPR development at Padur. Despite marketing the tender to Middle Eastern oil producers such as Saudi Aramco and traders like Goldman Sachs and Vitol, no foreign firms participated, sources said in March. ISPRL has not disclosed details of the final bidders.
To attract investors, the government eased controls on the sale and export of oil from SPRs and extended tax incentives, including viability gap funding (VGF). The VGF was capped at 60 per cent of the project cost or ₹3,420 crore. MEIL’s bid, placed just below this ceiling, edged out two unnamed domestic rivals to secure the project, The Economic Times report said.
Why it matters
This marks the largest-ever private sector initiative in India’s strategic oil reserves, which is aimed at significantly enhancing the country’s energy security. The new facility is likely to add to India’s existing stockpile, which currently covers only 8-9 days of crude oil demand when filled, The Economic Times mentioned.
How will the deal work?
ISPRL is expected to sign the agreement with Megha and hand over a 214-acre land parcel at Padur free of cost for building the storage facility. The contract may also require the company to fill part of the cavern to ensure emergency preparedness. The project also involves creating dedicated loading and unloading facilities, as well as onshore and offshore pipelines.
Megha can recover its investment by leasing storage space to the government or oil companies and by trading the crude it stores. Leasing will give the company a steady cash flow, while trading offers higher returns but comes with greater risk and requires expertise.
However, in case of emergencies, the government will have first rights over the stored oil, ensuring the reserve functions as both a commercial asset and a strategic safeguard.
Deal in numbers
- 2.5 MMT: Capacity of new SPR
- ₹5,700 crore: Project cost
- 214-acre: Land parcel to be provided by ISPRL free of cost
How India compares
India’s existing SPR capacity stands at about 39 million barrels located at underground caverns in Visakhapatnam, Mangaluru, and Padur.
In contrast, the United States holds 727 million barrels in reserves, while China’s capacity exceeds 1,200 million barrels.
India eyes bigger oil buffer
ISPRL has been planning to more than triple the existing SPR capacity of over 5 million tons in 10 years to take it to 15 million tons. The move by ISPRL is timed to coincide with India’s plans to become a member of the International Energy Agency (IEA), which mandates 90 days of crude storage. The expanded SPR capacity should meet around 25 days of India’s current oil use, and together with commercial storage at refineries, India can easily meet the IEA requirements.
To ensure the security of crude supplies and reduce the risk of dependence on any one region, Indian oil producing PSUs have diversified their crude basket by sourcing oil from multiple geographies, including the Middle East, Africa, North America, and South America. India has also signed several long-term agreements for LNG procurement to ensure uninterrupted supplies and safeguard against price volatility.