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The second phase of the project will require an investment of $1.6 billion (Bloomberg)
The second phase of the project will require an investment of $1.6 billion (Bloomberg)

Companies may get grant to set up strategic oil reserves

Govt plans to offer viability gap funding to pvt players to meet project costs

The government plans to offer viability gap funding (VGF) to attract bidders for the second phase of Indian Strategic Petroleum Reserves, which will add 12 days of crude oil storage, two government officials aware of the matter said. The move is part of India’s efforts to enhance energy security.

The second phase will require an investment of $1.6 billion under the public-private partnership (PPP) mode. The Union cabinet’s nod for the terms to be offered under the VGF route to bidders will be sought. The proposal is under discussion.

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This comes against the backdrop of tensions between China and India, the world’s second- and third-largest crude oil importers, respectively. The move assumes significance as India’s energy needs are primarily met through imports, which raises supply risks in times of war or natural exigencies.

VGF is at the centre of India’s infrastructure-creation plans through PPPs. “Here, we are saying that it will be constructed by the private sector and we will give VGF. It will also be filled by the private sector. We will keep certain rights so that in times of emergency, we can use the oil," said a top government official, one of the two mentioned above, on condition of anonymity.

Queries emailed to the petroleum and natural gas ministry spokesperson on Wednesday afternoon remained unanswered till press time.

“For the second phase, there are still discussions going on within the government because, eventually, the model has to be perfected as it is a very unique experiment," said the second official cited above, who also did not want to be named. “What kind of viability gap we get is still under discussion. It’s still being cooked in terms of nature of support. We are calling the second phase commercial-cum-strategic."

The strategic crude oil reserves are typically state-funded and meant to tackle emergency situations. They allow a country to tide over short-term supply disruptions.

International Energy Agency (IEA) members maintain emergency oil reserves equivalent to at least 90 days of net imports.

“The bidder who quotes the least quantum of VGF will be preferred. Land acquisition is taking place in Karnataka and Odisha," said the first government official.

“The investment requirement for constructing these facilities is around 8,000 crore. More investment will be required to fill it. We are saying that the private sector does it. If the private sector comes forward for such huge investment, what are the terms to be offered to them? It has to be approved and we will take it to the Union cabinet," the first government official said.

India has an existing storage capacity of 5.3 million tonnes (mt) in Visakhapatnam (1.33 mt), Mangaluru (1.5 mt) and Padur (2.5 mt) built at an investment of $600 million that is operational and stores 10 days of the country’s crude oil requirements.

The National Democratic Alliance government in June 2018 approved the construction of an additional 6.5 mt of strategic crude oil reserves at Chandikhol (4 mt) in Odisha and Padur (2.5 mt) in Karnataka to support 12 days of crude oil requirements.

Indian refiners also maintain 65 days of crude storage, taking the total tally to 87 days. In comparison, IEA countries hold 1.55 billion barrels of public emergency oil stocks. In addition, 650 million barrels are held by industry under government obligations and can be released as needed.

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