India's rise in overseas energy deals

Wed, 24 Aug Pre-Open

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India has witnessed an accelerated growth in the recent past. While the so called superpowers and developed nations are grappling with the global financial crisis, the country seems to be relatively in a sweet spot. The consistent growth in GDP, despite turbulence in the recent past, has boosted incomes. This in turn has driven up industrial investment and fuel consumption. And the same fuel usage is one of the inputs to the growth in GDP. Since India relies on imports for more than 70% of its energy needs, energy security is a serious issue and needs to be constantly worked upon.

And we are not performing that bad in this area it seems. As per the relevant data sources, India has emerged as a key player in international energy deals, so much so that it compares favourably against giants like China and Russia, and that too just in a matter of last six years. The figures speak for themselves. The Indian utility and energy companies have made US$ 5.1 bn worth of acquisitions outside BRIC nations. This compares quite favourably when compared to US$ 6 bn and US$ 7.4 bn made by Russia and China respectively. The data must be seen in the light of the fact that even till 2005, we were nowhere in the picture as far as international acquisitions of energy assets are concerned. While now, we can boast of US$ 5.9 bn of investment in domestic energy and utility sector and even higher outbound investment worth US$ 7.1 bn in the last decade. This will further be taken to new heights once the Reliance Industries Ltd - BP deal is formalized.

So what has led to this investment drive? Well, we being not so rich in natural energy resource, which is a vital ingredient to the economic growth, it is crucial for us to not only increase our resource base, but diversify it across different nations as well. Our country has seen both private and public sectors taking an active interest in the same. And why not? With rising demand, we cannot afford a slow pace of growth. Another incentive for looking outside is to fetch better return on investments as oil and gas blocks within the country are too competitive. The diversified investments will spread and minimize risk across different nations as well. The importance of the latter can hardly be undermined, especially after the crisis that gripped North Africa and Middle East in the recent past. With western economic majors like Europe and US on the verge of a slowdown and their refining industry bearing the brunt by facing shut downs, it will be irrational not to acquire and unlock the value of these assets. As compared to our mighty peers like Russia and China, what further wins us confidence of outside companies is the image that our country is more open where firms keep existing management systems in place. We should make the most of it and keep the momentum going.

However, the drive has not been without speed breakers. As far as the inward investment is concerned, the way the Cairn Vedanta deal has been handled by the country is a matter of shame and has set a bad precedent. The Government has misused its powers as regulator to let ONGC benefit in which it is the major shareholder. The delay of one year in approving a commercial deal and concluding it with an unpalatable conditional solution has given our image of an ideal investment destination a major setback. We need to be cautious in the future and avoid such tactless treatment at all costs.

To conclude, we believe that to be a country to reckon with, India needs to further refine its energy diplomacy and foreign policy. Any slip up here will block the energy availability at viable prices, and it won't be long before our ambitious dreams run out of fuel.