India, the world's third biggest oil consumer and importer, plans to build its first commercialcrude oil strategic storage as part of efforts to shore up stockpiles as insuranceagainst any supply disruption. Indian Strategic Petroleum Reserves Ltd (ISPRL), aspecial purpose vehicle created by the government for building and operating strategicpetroleum reserves in the country, has invited bids for constructing 2.5 million tonnesof underground storage at Padur in Karnataka, according to the tender document.

ISPRL had in the first phase built a strategic petroleum reserve in undergroundunlined rock caverns for storage of 5.33 million tonnes of crude oil at threelocations Visakhapatnam (1.33 million tonnes) in Andhra Pradesh and Mangalore (1.5million tonnes) and Padur (2.5 million tonnes) in Karnataka.

Under Phase-II, it intends to build a commercial cum strategic petroleum reserve in underground unlinedrock caverns along with associated above ground facilities, including dedicated SPMand associated pipelines (offshore and onshore) for storage of 2.5 million tonnesof crude oil at Padur-II at a cost of Rs 5,514 crore.

The Phase-I storages were built at government expense. In the tender, ISPRL said the Padur-II will beconstructed in a PPP (publicprivate partnership) model where private parties will design,build, finance, and operate the storage.

Bidders have been asked to quote the financial grant they require for the building of the reserves or the premium/fee theywant to offer to the authority.

The project will be awarded to entities that offer the highest premium. Where no bidder is offering a premium, it would go to the oneseeking the lowest grant, the tender document said. "Maximum quantum of grant to bequoted for the project shall be capped to Rs 3,308 crore," ISPRL said.

"A bidder who seeks a grant cannot offer any premium." The operator of Padur-II will lease out thestorage to any oil company wishing to store oil and charge a fee. The companiesstoring oil can sell it to domestic refiners. But in case of an emergency, India willhold the first right on oil usage. Bids are due by April 22 and the tender is to beawarded by June 27, the document said.

ISPRL is acquiring about 215 acres of land for Padur-II. India, which meets over 85 per cent of its oil needs through imports, will usethe strategic reserves in any emergency situation like supply disruption or war.

Of the Phase-I reserves, UAE's Abu Dhabi National Oil Company (Adnoc) has hiredhalf of the 2.5 million tonnes storage capacity at Padur and 1.5 million tonnesfacility at Mangalore. While the remaining 1.25 million tonnes at Padur has been filedby ISPRL, the 0.75 million tonnes of vacant storage at Mangalore is to be leasedout. Out of the 1.33 million tonnes of storage built at Visakhapatnam, 0.33 milliontonnes was a space that was built at the expense and for Hindustan PetroleumCorporation Ltd (HPCL).

Of the remaining, HPCL has hired 0.3 million tonnes more and therest of the storage is to be leased out. The government had in the 2023-24 budgetprovided for Rs 5,000 crore for filling the vacant slots in the caverns but mid-yearthat plan was deferred. In the interim budget for 2024-25, presented in February,no allocation has been made for the purpose.