Megha Engineering wins Rs 5,700-crore deal for India's first private strategic oil reserve

The project - valued at Rs 5,700 crore with an additional crude-filling cost estimated at $1.25 billion (Rs 11,020 crore) - represents the country's biggest private-sector move so far to bolster energy security

Megha Engineering & Infrastructures Ltd (MEIL) has clinched a milestone contract to build and manage India's first privately operated strategic petroleum reserve (SPR), an Economic Times report said on Tuesday.

The project - valued at Rs 5,700 crore with an additional crude-filling cost estimated at $1.25 billion (Rs 11,020 crore) - represents the country's biggest private-sector move so far to bolster energy security.

The ET report further said that Megha Engineering has been granted five years to construct and 60 years to manage a 2.5 million metric tonne (MMT) reserve at Padur, Karnataka. Once operational, it will significantly expand India's existing 5.33-MMT strategic stockpile, which at full capacity covers only eight to nine days of national crude oil consumption.

The paper explained that a portion of India's current reserves is already housed in Padur. The state-owned Indian Strategic Petroleum Reserves Ltd (ISPRL), which oversees the country's SPR network, conducted the bidding process. The winner was selected based solely on the level of viability gap funding (VGF) sought, capped at 60% of the project cost (Rs 3,420 crore). The Economic Times reported that Megha's proposal came in just under this ceiling, beating two competitors whose names were not disclosed.

Citing the same report, India's present SPR capacity - roughly 39 million barrels - is run by ISPRL at underground caverns in Visakhapatnam, Mangaluru, and Padur. This is far below the 727 million barrels maintained by the United States and the more than 1.2 billion barrels held by China. ISPRL is expected to soon finalise an agreement with Megha Engineering and hand over, free of cost, a 214-acre plot at Padur for the new facility. The deal may also oblige the company to partially stock the reserve to meet the government's emergency preparedness goals, The Economic Times added.

The business daily further highlighted that Megha will be allowed to recover its investment through leasing space to the government or oil companies and by trading the stored crude with complete commercial flexibility. While leasing offers a stable income, trading carries higher risk and requires specialist knowledge. The government will, however, retain first rights over the crude in times of national emergency, ensuring the storage continues to serve as both a commercial and strategic asset.

According to The Economic Times, the Padur initiative also involves building offshore and onshore pipelines, as well as oil loading and unloading systems.

The report pointed out that Megha Engineering has primarily been known for its EPC contracts in the oil and gas sector, including refinery construction, pipeline laying, and rig supply. It is also developing an underground LPG storage unit for Hindustan Petroleum. Operating an SPR, however, will open a new chapter for the Hyderabad-based firm.

As The Economic Times recalled, the idea of private participation in India's strategic oil reserves dates back more than a decade. The Union Cabinet gave in-principle approval in 2018 for two public-private partnership projects - one at Padur (2.5 MMT) and another at Chandikhol in Odisha (4 MMT). It took several years, the paper said, to design a framework appealing enough to draw private players, culminating in this breakthrough contract with Megha Engineering.