As the world’s third-biggest oil importer and consumer, India requires a steady supply of crude at all times. It is a national security element that is non-negotiable. As the country’s economy continues to grow, one of the key areas of concern is ensuring a stable and secure supply of petroleum products. In fact, it is more or less a top priority.
While India has strategic petroleum reserves (SPR), the costs of constructing and maintaining these are humongous. In a smart move, the Government has now decided to build the country’s first privately-managed SPR by 2029-30, granting the operator the freedom to trade all of the stored oil. “We hope to award the tender on a design, build, finance, operate and transfer basis by September and the SPR should be completed in 60 months from zero data,” LR Jain, chief executive of India Strategic Petroleum Reserves Limited (ISPRL), told the media at an industry event.
Govt has first right
According to ISPRL, a public sector entity, the Government will have the first right to the oil in case of a shortage. It issued a tender asking for an Expression of Interest (EOI) in March to see if oil majors will be interested in the project. The feedback so far has been overwhelming with expectations that both Indian oil majors, like Reliance and Adani and fossil fuel giants in the UAE, Saudi Arabia and North America, are eager to participate in the project At the moment, India has three SPRs in southern India. ISPRL has built underground storages for crude oil at Visakhapatnam, Mangalore and Padur. It maintains an emergency fuel store of a total 5.33 MMT (million metric tonnes).
ISPRL has allowed partial commercialisation of these three SPRs. The Abu Dhabi National Oil Company (ADNOC) has leased 1.25 million tonnes (of 2.5 million tonnes) at the Padur reserve and 0.75 million tonnes (of 1.5 million tonnes) at Mangalore. The plan now is to build two new SPRs – the first an 18.3-million barrel facility at Padur, and a 29.3-million barrel SPR in eastern Odisha – with private partners who will have the green signal to trade all of the oil locally.
Expanding capacity
While the Government will allow private companies to trade 100 pc of the oil stored in these new SPRs within the domestic market, the idea is to rapidly expand India’s SPR capacity with privatesector participation and funds. The rationale behind involving private companies in SPR management is simple:
Ensure efficiency, funds and expertise in the operation of these SPRs
Sharply reduce the Government’s funding in the building and maintaining of these asserts
Follow global best practices and strategic flexibility for SPR utilisation and commercialisation. Involving the private sector will also help India expand its SPR capacity.
The project will involve a public-private partnership (PPP) approach. What this translates into is that the entire process of construction, filling and maintenance of the SPR facilities will be with the private sector. The Government will only retain strategic control. As per the policy, the private companies will be allowed to freely sell a portion of the reserves to recover their costs and generate some returns.
Meeting IEA norms
It is also imperative that India expand its oil storage capacity for it will help it meet the International Energy Agency (IEA) membership requirement of maintaining a minimum strategic reserve equivalent to 90 days of domestic oil consumption. Currently, India’s total oil stocks, including SPR, are sufficient to cover approximately 66 days of consumption. The expanded capacity will help the country have an additional 24 days’ worth of oil and meet the IEA standards.
Countries like South Korea and Japan, as well as major European economies, have their SPR maintained in the private sector. This is, in fact, the global trend. The only major economy which has 100 per cent Government-owned reserves is the United States.
