Megha Engineering & Infrastructures Ltd (MEIL) on 16 September announced that they have been awarded a milestone contract to construct and administer India’s first privately run strategic petroleum reserve (SPR).

The project, priced at Rs 5,700 crore with an additional crude-filling cost of $1.25 billion (Rs 11,020 crore), is the country’s largest private-sector effort to improve energy security thus far.

According to the report, Megha Engineering has been allowed five years to construct and 60 years to manage a 2.5 million metric tonne (MMT) reserve near Padur, Karnataka. Once operational, it will greatly increase India’s current 5.33-MMT strategic stockpile, which at full capacity only provides eight to nine days of national crude oil consumption.

According to the publication, Padur already has some of India’s current reserves. The bidding procedure was performed by the state-owned Indian Strategic Petroleum Reserves Ltd (ISPRL), which manages the country’s SPR network. The winner was chosen purely on the basis of the viability gap funding (VGF) sought, which was limited to 60% of the project cost (Rs 3,420 crore). Megha’s bid came in slightly under this limit, beating out two competitors whose identities were not released.

According to the same article, ISPRL operates India’s current SPR capacity, which is around 39 million barrels, from subterranean caverns at Visakhapatnam, Mangaluru, and Padur. This is significantly less than the 727 million barrels stored by the United States and more than 1.2 billion barrels held by China. ISPRL is likely to sign an agreement with Megha Engineering and hand over a 214-acre property in Padur for the new facility at no cost.

The business daily also stated that Megha will be able to return its investment by leasing space to the government or oil firms and trading the stored crude with complete commercial flexibility. While leasing provides a steady income, trading entails greater risk and requires specialised knowledge.  

In times of national emergency, the government will retain first access to the crude, ensuring that the storage facility continues to serve as a commercial and strategic asset.

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