Nidhi Verma / Reuters
New Delhi: Hindustan Construction Co has emerged as the lowest bidder to build the first strategic crude reserve in Asia’s No. 3 oil consuming nation, sources involved in the bidding process said on Monday, 14 January.
It is likely to be awarded the contract this week, they said.
India aims to store 9.75 million barrels of oil in underground caverns by early 2011 as a first step, and has government approval to expand this to a 36.65 million-barrel reserve, enough to meet 15 days’ demand.
The stores will be used to hedge against volatility in international crude oil markets and feed domestic markets in case of short-term supply disruptions.
Four of the 13 firms and consortia, both from India and overseas, which expressed an interest in building the reserve were invited to participate in a reverse bidding process, with the price ceiling fixed at around Rs4.60 billion ($117 million).
Hindustan Construction bid Rs3.75 billion ($95.4 million), bagging the contract, said a senior government official involved in considering the bids.
But he said an announcement would only be made once the board of a state-run company set up to build the reserves, Indian Strategic Petroleum Reserves Ltd, approves the award.
“The contract will be formally awarded after the board approval sometime this week ... By early 2011, the first caverns will be ready,” the official, who could not be named, told Reuters.
Among the firms which lost out at the final stage were Patel Engineering Co. and a joint venture involving South Korea’s SK Engineering & Construction Co Ltd and Indian market leader Larsen & Toubro Ltd.
“There was intense competition, Patel Engineering lost the bid by a margin of 10 million while L&T was behind by Rs70-80 million,” said another government official close to the process.
Both officials said Hindustan Construction has hired the services of Australian exploration and mining consultant GeoConsult for the project. India’s first storages will be built in the southern state of Andhra Pradesh.
The first underground storages will house cheaper high sulphur crude, which offers better margins for Indian refiners, many of which are in the middle of expanding capacity.
India has said it eventually wants to double the overall strategic reserve capacity to 73.3 million barrels, with the involvement of the private sector, but this is yet to be approved by the federal cabinet.