Megha Engineering & Infrastructures has won the mandate to build and operate India’s first private-sector strategic petroleum reserve (SPR), as per a report by Economic Times.
According to the ET report, Rs 5,700-crore project will be set up at Padur in Karnataka, with an additional estimated $1.25 billion (around Rs 11,020 crore) required to fill it with crude oil at current prices. This marks the largest-ever private initiative to boost India’s energy security.
Five years to build, 60 years to operate
Under the contract, MEIL will construct a 2.5 million metric tonnes (MMT) SPR over five years and operate it for 60 years, according to ET.
The project will significantly enhance India’s current 5.33 MMT strategic stockpile, which at full capacity covers only 8-9 days of the country’s crude oil demand.
Indian Strategic Petroleum Reserves led the bidding process
The bid for the new project was conducted by Indian Strategic Petroleum Reserves (ISPRL), the state-owned body managing the current SPRs.
According to ET, The bidding process was based on the viability gap funding (VGF) sought by participants. The government had capped VGF at 60 per cent of the Rs 5,700-crore project cost, or Rs 3,420 crore.
ISPRL is expected to sign the contract soon and transfer, free of cost, a 214-acre land parcel for building the storage, the ET report noted.
ISPRL to transfer 214-acre land parcel
ISPRL will hand overthe 214-acre land parcel for building the storage, the people said to ET. The contract may also include clauses requiring the company to fill at least part of the SPR cavern to safeguard the government’s objective of emergency preparedness, they added.
Government keeps first rights in emergencies
MEIL will be allowed to lease out storage space to the government or oil companies and also trade crude oil stored in the reserve with full commercial freedom. Leasing is expected to give steady revenues, while trading will carry higher risk and demand expertise.
The government will retain first rights over the oil in times of emergency to ensure that the reserve doubles up as both a commercial asset and a safeguard.
Cabinet cleared Padur and Chandikhol projects in 2018
MEIL has largely worked as an EPC contractor for oil and gas firms—constructing refinery units, laying pipelines, and supplying rigs. It is also building an underground LPG storage facility for Hindustan Petroleum. Operating an SPR, however, opens a new chapter for the Hyderabad-based company.
ET highlights that private sector participation in India’s strategic petroleum reserves was proposed more than a decade ago. In 2018, the Union Cabinet gave in-principle approval for two projects—Padur in Karnataka (2.5 MMT) and Chandikhol in Odisha (4 MMT)—under the public-private partnership model. However, it took several years to finalise a framework that was attractive enough to draw private players.