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A file photo of an ONGC oil field in Gujarat. State-owned firms such as ONGC, Oil India, GAIL and Indian Oil have invested a total of `64,832.35 crore towards overseas energy security efforts. Photo: Amit Dave/Reuters (Amit Dave/Reuters)
A file photo of an ONGC oil field in Gujarat. State-owned firms such as ONGC, Oil India, GAIL and Indian Oil have invested a total of `64,832.35 crore towards overseas energy security efforts. Photo: Amit Dave/Reuters
(Amit Dave/Reuters)

PSUs, private sector may bid jointly for energy assets

Planned govt strategy is a bid to avoid undercutting and to enhance prospects of bids for overseas energy assets

New Delhi: In a bid to avoid undercutting and to enhance the prospects of bids for overseas energy assets, the government is working on a strategy to ensure that public sector units (PSUs) and private companies coordinate their actions, including the submission of a single bid.

If effected, this could make Indian bids more competitive and potentially strengthen the country’s bid for energy security.

“The government is trying to coordinate the actions of the public sector units and private sector companies. The idea is to work out on a realistic basis what is stopping (them) from bidding in a coordinated manner. There are a few procedural issues which the government is trying to iron out," said a person aware of the exercise who didn’t want to be named due to the sensitive nature of the matter.

The world’s fourth largest energy consuming nation’s push for resources has pitted India against China in a race for global resources—a contest in which it has usually been bested. The competition for resources has, in turn, raised prices for the assets. India has lost projects to China in Kazakhstan, Nigeria, Angola and Myanmar.

“With limited opportunities around, the idea is to have one sound, strong Indian bid. This may involve changing the investment guidelines for the PSUs. The mandate also includes focusing on the acquisition of coal assets," said the person cited above.

With India importing more than 80% of its energy needs, Indian firms are eyeing global opportunities in coal mining, power projects, refining, downstream facilities, equity stakes in hydrocarbon blocks and infrastructure.

A senior government official, who also didn’t want to be identified, confirmed the move and said, “The idea is being explored. There are many things that the private sector is good at. They are quicker, faster and nimbler than the government-owned firms, which is a reflection of their ownership. The idea is being talked about."

India sees energy security as key to shoring up weakening economic growth. This stems from the realization that existing investment guidelines for PSUs are bureaucratic and risk averse.

State-owned firms such as Oil and Natural Gas Corp. Ltd (ONGC), Oil India Ltd (OIL), GAIL (India) Ltd and Indian Oil Corp. Ltd have invested a total of 64,832.35 crore towards overseas energy security efforts. Non-state refiners such as Mukesh Ambani-owned Reliance Industries Ltd (RIL) and the Ruias’ Essar Oil Ltd have also made significant investments overseas.

Questions emailed to the Indian foreign ministry spokesperson late on Friday remained unanswered. The spokesperson’s office confirmed that the queries had been received.

T.K. Ananth Kumar, director (finance) at OIL, said, “There is no bar against joining anybody or going with anyone. There have been instances in the past wherein we have participated with private sector players. However, it is a fact that being a government-owned company we are more comfortable with PSUs."

Mint reported on 16 September 2008 on Indian PSUs evolving a joint mechanism to bid for overseas projects or contracts. However, this was only limited to government-owned firms.

The finance ministry emphasized the importance of acquiring energy assets overseas in the Economic Survey it presented last month. “In view of an unfavourable demand-supply ratio of hydrocarbons in the country, acquiring equity oil and gas assets overseas is an important strategy for enhancing energy security," it said. “The government is encouraging national oil companies to aggressively pursue equity oil and gas opportunities overseas."

An RIL spokesperson said, “RIL welcomes any move that enhances India’s energy security and would be keenly looking at the option of jointly bidding for energy assets overseas." An Essar Oil spokesperson declined to comment.

ONGC chairman and managing director Sudhir Vasudeva was unaware of the proposal, but said, “We have internally discussed about an idea of a PPP (public-private partnership) venture in the form of a special purpose vehicle (SPV), which comprises companies having business interests in varied sectors such as electricity generation or infrastructure. The idea being when an opportunity is explored, we offer the entire gamut of services to augment our position. The private firms can join this SPV depending upon the type of opportunities on offer."

Investment in overseas assets is important given the limited nature of India’s domestic energy sources and the country’s dependence on imports—as high as 80% for crude and 25% for natural gas. The country’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) now to around 1,500 mtoe, according to the oil ministry.

This comes in the backdrop of supplies from India’s overseas assets declining. ONGC Videsh Ltd, the overseas arm of ONGC, is expected to produce 6.865 million tonnes (mt) of oil and equivalent gas in the current year compared with around 8.753 mt in the last fiscal due to strife in South Sudan and Syria.

According to the International Energy Agency’s world energy outlook, India, China and West Asia will account for 60% of the world’s energy demand by 2035, when the price of imported crude will be $215 a barrel in nominal terms.

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