New Delhi: The petroleum ministry has sought access to the country’s foreign exchange reserves so that it can acquire more energy assets abroad as competition with Chinese firms hots up.
“The idea has been taken up by the ministry in a formal letter with the finance ministry in the recent past,” said petroleum secretary S. Sundareshan.
Currently, public sector companies in India invest their own resources while buying overseas energy assets.
“We should be moving aggressively towards acquiring assets abroad,” Sundareshan said. “Because of national agenda, we would expect resources from other sources to come into the sector.”
Allowing access to forex reserves would require the approval of the Reserve Bank of India. Under the Reserve Bank of India Act of 1934, the central bank is the guardian of forex reserves and decides how it is deployed.
Indian state-owned firms such as ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural Gas Corp. Ltd, are locked in fierce competition for energy assets with rivals including China National Petroleum Corp. (CNPC), Sinopec Corp. and China National Offshore Oil Corp. Ltd in Africa and South America.
But Indian firms find little external financial backing, unlike their Chinese rivals.
Last year, the Chinese government extended a $30 billion (Rs1.39 trillion) five-year loan to CNPC to back the firm’s quest for more resources.
China, the world’s fastest growing economy, has around $2 trillion in foreign exchange reserves, compared with India’s $278.71 billion.
Both India and China have extended lines of credit to build infrastructure in such energy-rich regions as they seek mineral resources to fuel their growing economies.
“This will help companies such as OVL to move to big-ticket acquisitions in the oil and gas sector, which may go as high as $5 billion to $10 billion,” said Ajay Arora, partner at audit and consultancy firm Ernst and Young.
OVL’s largest acquisition is of Imperial Energy Corp. Plc for £1.4 billion (Rs10,150 crore today) last year for the UK firm’s Siberian deposits.
OVL produced around 8.75 million tonnes (mt) of oil and equivalent gas in 2008-09 from its assets in Sudan, Vietnam, Venezuela, Russia, Syria and Colombia. It aims to acquire 20 mt a year of oil and equivalent gas by 2020.
India depends on imports to meet its oil needs and is particularly vulnerable to supply disruptions.
Acquiring energy assets overseas is key to energy security for India, the world’s fifth largest oil importer. India imports 75% of its requirements and accounts for some 3.5% of global consumption.
India is set to become the third largest oil importer after the US and China before 2025, with energy demands expected to almost double by 2030, according to the International Energy Agency.