The announcement of a schedule for the India-Iran gas pipeline, running through Pakistan, is to be welcomed. It justifies the petroleum minister's focus on energy diplomacy and his insistence these last many months that the deal is based on realistic assessments of geo-political realities. Simultaneously, however, the Cabinet has decided to not approve ONGC Videsh Ltd's (OVL) proposal to invest in a Nigerian oil field, for reasons that are not immediately clear. The scant information that is available suggests that the problem may be with the nature of the deal in traditionally corruption-ridden Nigeria, but it is possible that this is an incorrect conclusion. Many other oil deals have been approved in dodgy countries, and with partners whose role in the transaction is not clear. |
With one project looking a surer bet now and another having been torpedoed, this may be a good time to critically examine India's strategy for achieving external energy security. There is everything to be said for doing pipeline deals with all of India's neighbours, even if the politics of the job presents challenges. However, a nuanced approach may be called for when it comes to investing in overseas oil fields. |
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The majority of such significant deals (but not all of them) have been by way of investing in fields where oil has been already struck; the deals have therefore involved limited risk, and it has been largely a matter of using India's foreign exchange reserves and the wealth of the oil companies to make sensible investments. While this is fine (the Sakhalin investment, for instance, has been a particularly paying one), it is little more than good investment banking, based on some oil expertise. Therefore, two questions arise. |
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First, shouldn't OVL be acquiring the ability to assess fields for their oil and gas potential, and bidding for prospecting rights so as to maximise returns? That is what a strong oil company should be expected to do. But this has not been possible so far in any significant manner because OVL is little more than a shell company, dependent for most of its oil expertise on the parent ONGC""whose own domestic record is nothing to shout about. Prospects in Central Asia, therefore, remain unexamined for months at a stretch even though firm offers have been available. |
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The second question concerns the strategy of trying to book oil in distant lands. If the oil produced from such fields is to be brought to India or swapped with oil nearer home, it implies the existence of a functioning oil market and open sea lanes. But if those two exist, then getting oil is merely a matter of being able to pay for it""and the need to get into dodgy deals in countries like Sudan and Nigeria can be questioned. If the choice is available, it may be better and safer to go in as an investor with the oil majors, who will use their expertise to assess fields and also handle the "environmental" issues, so that poorly equipped Indian companies do not take on the burden themselves. |
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