India plans to lease out half of its Padur strategic oil reserve site in southern India to Abu Dhabi National Oil Co. (ADNOC) for storing crude, sources said.

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Indian Strategic Petroleum Reserves Ltd (ISPRL) will sign an initial agreement with ADNOC on Monday in the presence of oil minister Dharmendra Pradhan, three sources with direct knowledge of the matter said.

The agreement will allow ADNOC to sell oil to local refiners but give the government of India the first right to the oil in the case of an emergency.

It will be the second such deal with ADNOC, which is already storing oil at the Mangalore strategic storage in Karnataka.

"We will sign a memorandum of understanding with ADNOC to fill two compartments in Padur along the same lines as the Mangalore cavern," said one source with direct knowledge of the matter, declining to be named ahead of an official statement.

In return for allowing ADNOC to store its crude at a strategic reserve site, India does not have to pay for the imports, only accessing the oil in emergencies.

India`s oil ministry and ISPRL, a government entity that builds the caverns, did not respond to Reuters` request for comments.

An ADNOC spokesman said: "We are already working with India`s ISPRL in Mangalore and we hope to build on this positive working relationship in the future."

India`s cabinet last week approved a plan allowing foreign oil companies to store oil in Padur`s strategic storage.

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"Participation by foreign oil companies will significantly reduce budgetary support of government of India by more than 100 billion rupees ($1.38 billion) based on current prices," Law Minister R. S. Prasad told a news conference last week.

The Padur site is located about 5 km (3 miles) from the southwest coast and 40 km from Mangalore Refinery and Petrochemicals Ltd`s refinery.

India relies heavily on oil imports, which account for about 80 percent of its total demand.

To protect itself from potential supply disruptions, it has built emergency storage in underground caverns at three locations, with a capacity to hold 36.87 million barrels of crude, or about 9.5 days of its average daily demand.