Opportunity for Public Private Partnership (PPP) in Indian Strategic Petroleum Reserves Program

Government of India has decided to keep the nation ahead in the quest for securing its vital crude oil buffer inventory by seeking to almost double the capacity of its underground storage caverns through the ambitious Phase -II programme which seeks Public Private Partnership in India's emerging Hydrocarbon Sector.

Indian Strategic Petroleum Reserves Ltd. (ISPRL), a SPV created for the purpose of building the SPRs has successfully completed and commissioned the Phase I SPRs program. The Union Cabinet has now accorded in principle approval for the Phase-II SPR program which entails creation of additional storage facilities of 6.5 MMT of crude oil to be stored in underground rock caverns at Chandikhol in Odisha and Padur in Karnataka with an envisaged investment outlay of 11,000 Crores (US$ 1.6 Billion). The investment model seeks partnership through DBFOT (Design, Build, Finance, Operate and Transfer) and offers prospective concessionaire the rights on the crude oil inventory as per an agreed term where the Government of India will have the first right of refusal on the inventory in times of exigencies. As a key takeaway the Concessionaire will have access to the large Indian refining market and multiple other revenue streams.

Government of India's one of the key initiative towards energy security of the country - the strategic petroleum reserves program, envisions creation of additional crude oil reserves facilities in Private Public Partnership (PPP) mode and the road show for the same was launched here today by Mr. Dharmendra Pradhan, Minister of Petroleum and Natural Gas ( MoP & NG) and Skill Development and Entrepreneurship (SDE). Speaking on the occasion, Shri Pradhan said that on world energy landscape, India is the 3rd largest consumer of energy and also the 3rd largest importer of crude oil in the world. With Indian economy growing rapidly, energy demand is forecasted to grow more than any other country in the world in the next two decades. India has a very large requirement of petroleum fuels. Demand for petroleum products has been increasing at a CAGR of 5.5% from 2013 to 2017. He said that our domestic production will be unable to meet our ever increasing domestic demand of petroleum fuels and petrochemicals and India will continue to depend on imports for foreseeable future. The Minister said that in last one year, we have also faced severe headwinds by way of rising oil prices. Since October 2017, crude prices have gone up 50% in US Dollar terms and 70% in Indian Rupee terms. Much of it is to do with geo-political events imposed on the World. We have to mitigate the impact and use the challenge as an opportunity. One of the mitigation measure is to create enough strategic reserve within the country to store adequate crude physically within the country. This will not only help in avoiding disruption in case of supply side disruptions, it will also help in reducing price volatility .

Mr. Pradhan said that with the objective to meet the energy security, Government of India formed Indian Strategic Petroleum Reserves Limited (ISPRL), a SPV under Ministry of Petroleum and Natural Gas. To further improve strategic reserve, the union cabinet granted approval for establishing additional 6.5 MMT of strategic petroleum reserve which will be able to provide extra 12 days of supply. After a detailed study considering technical and commercial factors, two locations -Chandikhol in Odisha and Padur in Karnataka have been selected as the optimum location for these SPRs . These two SPRs will add strategic petroleum reserves of 12 days in addition to 10 days of reserves achieved in Phase I. Indian refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, takes the Indian crude storage tally to 87 days. This is very close to the storage of 90 days mandated by IEA for member countries. On the issue of Phase-II, he said that these are large investments requiring more than 1.5 billion US dollars of capital, and the Government plans to develop this under PPP framework. The Secretary, Ministry of Petroleum and Natural Gas Dr. M.M.Kutty and senior officers of the Ministry, Oil companies , ISPRL, stakeholders were present on the occasion.