Prime Minister Manmohan Singh has recently highlighted the significance of equity oil and gas in Indias strategy to ensure its energy security and for maintaining the economic growth momentum over the long run. While there is a broad consensus in the country over the necessity of acquiring oil and gas assets abroad,an institutional mechanism is sometimes found lacking.The institutional weakness came to the fore especially in cases where Indian companies like ONGC Videsh (OVL) were in direct competition with Chinese national oil companies. OVL has lost bids for hydrocarbon assets to its Chinese counterparts mainly because of delay in decision-making by the Indian government.Speed is a critical factor in completing international transactions for the acquisition of oil and gas assets. Chinese companies hunting for oil and gas assets overseas have the backing of a sovereign fund. Besides,they are also ready to pay a premium price for natural assets. In contrast,Indian state-owned companies are hobbled by the governments decision-making process. They have to route their investment approval proposals through the Cabinet Committee on Economic Affairs,which is a complicated and time-consuming process.While energy consumption in developed countries has reached a saturation point because of factors like energy efficiency measures and slow economic growth,India and China continue to guzzle energy as their economic performance remains robust. The two countries have emerged as the new drivers of growth in global energy consumption.Indias dependence on imported energy is rising fast as the economy remains on a high growth trajectory while domestic supply is unable to keep pace with consumption. India has no option but to go out and acquire oil and gas assets to meet the energy requirement of its economy.India is pursuing its equity oil strategy through OVL. A committee of secretaries (CoS) has been set up to expedite the approval process for OVLs investment proposals. However,the CoS can take up for approval only investment proposals of up to Rs 300 crore. For seeking approval for investment proposals above Rs 300 crore,OVL has to go to the CCEA.The Rs 300 crore bar is a very small amount for the acquisition of hydrocarbon assets in the prevailing market scenario when new discoveries are mostly being made in areas like deep and ultra deep water and difficult terrains. Exploration in these areas is technologically challenging and high capital intensive. So naturally,these assets come at a higher price. Given that the sources of easy oil are depleting fast and companies are ready to pay a premium price for the acquisition of oil and gas assets,the market is going to be very tight in the coming years. The government needs to increase the Rs 300 crore ceiling to a more realistic level.While hunting for oil and gas acreages,Indian companies have to go to countries which might be rich in hydrocarbon resources but lacking in development. These countries expect buyers to invest in their economic development. OVL alone cannot handle such a responsibility. It needs the backing of PSUs from infrastructure sectors like railways,power,transport,shipping and construction. The government needs to take policy initiatives to institutionalise such a collective approach.The petroleum ministry has floated the idea of a sovereign fund to finance the acquisition of hydrocarbon assets abroad by Indian state-owned companies. However,there is not much progress in this regard. The government needs to seriously pursue this idea if India has to remain a serious player in the global oil and gas asset market.Financing the acquisition of oil and gas assets requires huge amounts of money. Indian companies have to raise money from the capital market for financing their acquisitions. A sovereign fund would provide financial backing for Indian companies looking to acquire oil and gas assets abroad. Besides easy financing,it would also provide much-needed confidence to compete in the global oil and gas asset market. Of course,while India needs to project its image as a serious player in the world oil and gas market,it also needs to sharpen its focus on domestic exploration. Despite eight rounds of bidding under the national exploration licensing policy (Nelp),only about 60 per cent of the sedimentary basin area has been explored. India needs to expedite the pace of exploration domestically. China is only likely to become more aggressive in its pursuit of oil and gas assets overseas as it gains in economic muscle. It is high time India too fine-tuned its strategy.
The writer is special correspondent,The Financial Express
noor.mohammad@expressindia.com
