India’s largest oil reserve will be created in Odisha, the government has invested Rs. 8,571 crore scheme announced

India is looking for private investors to build its largest strategic petroleum reserve in Odisha. The facility, which has the capacity to store 40 lakh tonnes of crude oil, is estimated to cost Rs 8,571 crore. The proposed facility to be constructed at Chandikhol will increase the country’s existing strategic petroleum storage capacity by 80 percent.

According to the tender documents, the government is giving a grant of up to Rs 5,142 crore. The contract will be awarded to the bidder requesting the lowest grant. The central government is planning to lease almost half the capacity (i.e. 524,000 tonnes) of its existing strategic storage facility at Visakhapatnam for three years. There will also be an option to extend the lease for another four years.

Dealing with obstacles in the Strait of Hormuz

Both of these measures are being taken at a time when oil-producing countries in West Asia are looking for ways to store their crude outside their region. This is being done to avoid a war in Iran and a prolonged interruption of energy supplies through the Strait of Hormuz. Last month, Saudi Arabia announced that it would start storing oil in rock caves in Singapore from next year.

It already has crude oil storage facilities in Japan and South Korea. The United Arab Emirates (UAE), which already stores some crude oil in India’s strategic reserves, announced plans to store more oil in India in June.

State-owned Indian Strategic Petroleum Reserve Limited (ISPRL), which manages the country’s strategic reserves, has floated separate tenders to lease a portion of the Odisha project and the Visakhapatnam facility. Bids for the new facility have to be submitted by February 26, 2027. While the last date for storage lease is December 1, 2026.

40 percent of the supply was cut off

The bottlenecks in the Strait of Hormuz have exposed vulnerabilities in India’s supply system, prompting India to step up efforts to increase its strategic oil reserves. Due to the sudden closure of this waterway, nearly 40 percent of India’s crude oil supply was cut off. This forced refineries to seek alternative oil cargoes from around the world, often at higher prices. The government has directed the Oil and Natural Gas Corporation (ONGC) to build a strategic storage capacity of 1.75 million tonnes in Mangaluru. The state-owned company approved the plan in July.

The project is in the pipeline since 2018

Located in Chandikhol, Odisha, the project has been in the pipeline since 2018. The Cabinet at that time approved the creation of two more strategic reserves, including a 4 million tonne facility in Odisha and a 2.5 million tonne project at Padur in Karnataka. To reduce the financial burden on the government, both these projects were planned to be constructed under the Public-Private Partnership (PPP) model.

This is part of the second phase of India’s SPR (Strategic Petroleum Reserve) programme. Earlier, three facilities with a total capacity of 5.03 million tonnes have been constructed at Visakhapatnam, Mangaluru and Padur. 4,098 crore was spent on the construction of these three facilities in the last decade.

It took several years for the government to decide on a commercial model to attract private investors. Under this model, the government provides up to 60 percent of the project cost as a grant. At the same time, the successful bidder has to build commercial and strategic petroleum reserves under the ‘Design, Build, Finance, Operate and Transfer’ model.