Bharti Airtel’s $10.7-billion acquisition of Zain’s African assets might have made other Indian companies green with envy. After all, Africa is the only emerging market that can offer scale and future growth. The 53 countries that make up Africa have a combined population of a billion people. But the garden is not as rosy as it seems.
Some years before, when KEC International, a R P Goenka group-promoted company, undertook an over 100-km (kilo metre) transmission line project, linking two countries in Africa, it realised the budget would shoot up since it would have to make roads to transport the transmission towers.
KEC earns around 15 per cent of its revenue from Africa. To prevent a repeat of such oversights, the company accounts for unforeseen expenses on infrastructure when it bids for projects in most of the less-developed African countries, according to Ramesh Chandak, managing director and chief executive of KEC International.
Indo-African bilateral trade is projected to grow from $26 billion in 2008 to $150 billion by 2012, according to industry body Assocham. India and South Africa hope to grow their bilateral trade to $10 billion by 2012 from $7 billion.
In June, India’s exports to African countries stood at Rs 10,787.64 crore and imports at Rs 17,410.43 crore, according to data provided by the Ministry of Commerce. Among the importing countries, South Africa, Nigeria and Angola contributed over 80 per cent.
While trade is flourishing, so are the challenges — like civil wars, insurgency, robbery, diseases, poor infrastructure and lack of support from local governments. Many parts of Africa lack proper infrastructure like ports, roads and electricity.
Take the case of shipping major Mercator Lines, which bagged a coal mine in Mozambique under a 30-year lease in 2008. The mine has 2-billion tonnes of coal reserve. The company had agreed to pay a royalty of $1 per tonne to the Mozambique government and the mining was supposed to commence this year. The local government had assured to set up railway tracks and ports, but nothing has been done till date. “We need rail and port facilities; only then can we start production. But the government there has been merely promising and there is no progress on the ground. It is very disappointing,” said a company executive on condition of anonymity.
ONGC Videsh Ltd (OVL), the overseas arm of Oil and Natural gas Corporation (ONGC), which built a 741-km pipeline from Khartoum to Port au Sudan in 2005 at an investment of $194 million, faces a similar dilemma. It is struggling to get investment backing from the Sudanese government. Now, ONGC is trying to force the Sudanese government to pay back the installments, spread over nine years. “The issue is at an arbitration stage with the Sudan Government,” said ONGC Chairman R S Sharma.
Tata Chemicals — which acquired Magadisoda of Kenya, the largest soda ash maker in Africa, through the acquisition of UK-based Brunner Mond in 2005 — faces a similar situation. Tata Chemicals wanted to construct a 500,000 tonne plant to process soda ash at Lake Natron, near the Kenya-Tanzania border, but the project was suspended due to opposition from locals and environmentalists.
Many Indian companies are also exploring hydrocarbon potential in Africa, but most projects have not gained much pace. Yet, Indian companies have lined up huge investments in Africa in recent years.
There are six major oil-producing countries in Africa – Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan.
OVL, for instance, has a 25 per cent stake in Greater Nile Petroleum Operating Company and invested over $750 million in two oil and gas exploration blocks in Sudan. OVL has oil and gas exploration blocks in other African countries like Nigeria, Libya and Egypt. BHEL is constructing a 500-mega watt (Mw) thermal power plant in Sudan, a country battling civil war for the past nine years. BHEL started Kosti Thermal Project for Sudan’s National Electricity Corporation in 2006, but the project is yet to take off.
ONGC-Mittal Energy Ltd (OMEL) — a joint venture between OVL and Mittal Investment Sarl, the family investment arm of Indian steel baron Lakshmi Mittal — owns two Nigerian oil and gas exploration blocks and has a commitment to build a 180,000-barrel-a-day refinery, a 2,000-Mw power plant and a railway line connecting eastern and western Nigeria. OMEL is yet to invest in these projects. Nigeria, Africa’s largest crude oil producer, has four oil refineries, but imports processed petroleum products to meet its demands.
Dilip Khanna Partner, Transaction Advisory Services of Ernst & Young, said: “From all economic parameters, the next level of growth for India will come from the African continent. It would be a good strategy for not only energy companies but also consumer goods companies to invest in Africa.”
Essar, which operates a GSM telephony network in Kenya under the brand “yu”, with over 400,000 subscribers, owns 50 per cent in Kenya Petroleum Refineries Ltd (KPRL), the only refinery in east Africa.
Indian Oil Corporation Ltd (IOC)’s subsidiary Indian Oil Mauritius Ltd operates 17 petrol pumps in Mauritius at an investment of Rs 70 crore and plans to expand its operations there. The Mauritius government has invited ONGC to set up a refinery there in a joint venture with Mauritius’ State Trading Corporation (STC). STC procures processed fuel from Mangalore Refinery and Petrochemicals (MRPL). At present, there is no refinery in Mauritius. ONGC is yet to accept the invitation.
Videocon and Bharat Petroleum Corporation-promoted Bharat PetroResources own over 20 per cent share in the Rovuma Basin block, off the coast of Mozambique in South Africa, where the operator Anadarko Petroleum found gas a few months ago. “The Windjammer well in Rovuma Basin block is one of the biggest and the largest find in the world this year, with reserves of 8-10 trillion cubic feet gas. We may bring this gas to India in the near future,” said Venugopal Dhoot, chairman, Videocon Industries.
Tata Group, one of the first Indian companies to enter Africa three decades ago, employs over 750 people in a dozen-odd countries. The group has invested over $100 million in Africa. While Tatas’ vehicles are popular there, the group set up a steel plant in South Africa two years ago. Its Taj Padomzi is one of the largest hotels in Lusaka and the company also owns Neotel, one of the largest telecom players in South Africa. Like the Tata vehicles, Mahindra’s Bolero and Scorpio are also popular in Africa. The Ruia’s promoted-Essar Group is also planning to set up a power plant in South Africa and has plans to invest over $2 billion (Rs 9,270 crore) to have a pan-African mobile operation.
“Many African villages are similar to rural India. Connectivity by air is also good. I never encountered any security problems in Africa,” said A S Mohanty, executive director at Glenmark Pharmaceuticals, who had traveled extensively in the African continent in the past.
For the time being, the obvious trade benefits score over infrastructure problems.
With contributions from Kalpana Pathak and Abhineet Kumar
