Govt to invite bids for private participation in new strategic oil reserves

Source: Hindustantimes, 26 July 2021

The Cabinet approved the proposal to set up commercial-cum-strategic crude oil reserves earlier this month paving the way for setting up of two new projects that can store 6.5MT of crude oil.

The government will soon invite bids from private energy firms to set up two new strategic crude oil reserves under the public-private participation (PPP) mode where it may also provide viability gap funding (VGF) to incentivise private sector investors, two officials said.

The Cabinet approved the proposal to set up commercial-cum-strategic crude oil reserves earlier this month, paving the way for setting up of two new projects that can store 6.5 million tonnes (MT) of crude oil, which will be sufficient to meet country’s fuel requirements for 11.5 days, the officials said, requesting anonymity.

“The new projects will augment India’s strategic crude storage capacity from 5.33MT to 11.83MT. As per the consumption pattern of 2017-18, the total capacity is estimated to provide for 21.07 days of India’s crude oil requirement,” an official in petroleum ministry said. According to Petroleum Planning and Analysis Cell (PPAC), consumption of petroleum products in 2017-18 was 206.2MT.

Existing three operational underground crude oil reserves built by state-run Indian Strategic Petroleum Reserves Ltd (ISPRL) in the phase 1 will, however, be wholly-owned by the government, the official said. ISPRL’s three operational crude oil storage facilities are located in Visakhapatnam (1.33MT), Mangaluru (1.5MT) and Padur (2.5MT).

“The three strategic reserves, already built under phase 1, are strategic in nature. Crude stored here would be used during an oil shortage event as per the government’s directive. But, two new reserves proposed to be built in PPP mode under the second phase, would be both commercial as well as strategic in nature,” a second official working in an economic ministry, said.

The details of the new projects are being worked out after the Cabinet approved the proposal on July 8, the first official said. “The request for proposal (RFP) for construction of these facilities is being finalised. Meanwhile, the government has allocated ₹210 crore in 2020-21 to ISPRL for land acquisition,” he added. The two new underground storages are planned at Chandikhol in Odisha (4MT) and Padur in Karnataka (2.5MT).

According to ISPRL, the crude oil storages are constructed in underground rock caverns and are located on the east and west coast of India. Underground rock caverns are considered as the safest means of storing hydrocarbons. Crude oil from these caverns can be supplied to the domestic refineries either through pipelines or through a combination of pipelines and coastal movement. These strategic storages are in addition to the existing storages of crude oil and petroleum products with the oil companies. In addition to that domestic refiners usually keep stocks for 64.5 days. Ideally, oil importing countries maintain emergency oil reserves equivalent to 90 days of consumption or more. India is the third largest importer of crude oil after the US and China, and imports more than 80% of crude oil it processes.

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