India, China work out new energy synergies

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India, China work out new energy synergies
By Siddharth Srivastava
NEW DELHI - Have India and China worked out new synergies in acquiring overseas energy assets? The fruits of such teamwork seem to be increasing.
China Petrochemical Corp, better known as Sinopec Group, is reported to be close to signing a deal with Iran to develop the Yadavaran oilfield in the southern area of the Middle Eastern country. Sinopec will secure a 51% stake in Yadavaran, with India's state-owned Oil and Natural Gas Corp (ONGC) taking a 29% interest.
A deal would not only grant China access to a field with estimated reserves of more than 30 billion barrels of oil, but also represent the latest alliance between Sinopec and ONGC. India had an understanding with the Iranians that once the terms for acquisition with the Chinese company were finalized, a 29% stake would come to it on the same conditions.
Last month, the two companies teamed up to invest US$850 million to buy a 50% stake in Omimex de Colombia Ltd, which has oil-and-gas-producing assets in the South American country and is owned by US-based Omimex Resources Inc. The two Asian firms have formed a joint-venture company, Mansorovar Energy Colombia Ltd. This is the first acquisition made jointly by ONGC's overseas arm, ONGC Videsh Ltd, with Sinopec Group, the parent of listed Sinopec Corp.
India's largest refiner, Indian Oil Corp Ltd, is also in talks with Sinopec about possibly setting up a company to purchase crude oil jointly. Talks are on for a joint bid in Kazakhstan.
In the recent past, New Delhi and Beijing have worked jointly in Syria and Sudan. In the first instance of Sino-Indian cooperation, the two countries won a joint bid in December 2004 to buy PetroCanada's 37% stake in Syrian oilfields for $573 million.
In March this year, the two state-run energy firms Hindustan Petroleum Corp Ltd and Sinopec Corp signed a preliminary agreement for projects in India, China and elsewhere. The two will cooperate in international trade, exploration and production, refineries and petrochemicals, and consultancy services.
In January, a wide-ranging agreement was signed between India and China for the hydrocarbon sector. India's energy giant ONGC and China National Petroleum Corp signed an initial deal covering exploration and production, while state-run gas transporter GAIL (India) Ltd signed a pact with Sinopec, CNOOC (China National Offshore Oil Corp) and Beijing Gas.
"Unbridled rivalry between Indian and Chinese companies for the acquisition of overseas hydrocarbon assets is to the advantage only of the seller of the asset and to the disadvantage of both our countries, irrespective of who eventually wins the bid,'' said Mani Shankar Aiyar, then India's petroleum minister, after the cooperation agreements were signed in January.
Like China, India is also hoping to build a series of terminals for the import of liquefied natural gas (LNG) along its coast, and was in talks with suppliers from Australia, Oman, Algeria, Nigeria and Malaysia. The two countries are also looking at natural gas from Iran, Turkmenistan and Myanmar.
The Indian government has drawn up an ambitious plan to garner 60 million tonnes per annum of equity oil from overseas by 2025 by empowering public-sector oil companies to enter the exploration and production business abroad. India is seeking oil assets in countries such as Kazakhstan, Iran, Sudan, Vietnam and Ecuador through ONGC Videsh (OVL). OVL currently has stakes in 24 oil and gas projects spread across 14 countries, including Russia, Sudan, Vietnam and Myanmar. China's plans are bigger.
Last year, an unbridled competition for energy resources saw China beat India, but also ended up paying much more. For example, in a bid for Kazakhstan's third-largest commercial oil producer in August 2005, China outbid India when Kazakh authorities allowed Beijing to make an additional offer ($2 billion development aid).
In this context, cooperation and joint bids are the new buzzwords. Brazil, Russia, India and China have agreed to work together and increase the number of meetings at multilateral forums, Russian Foreign Minister Sergei Lavrov said recently. The countries will also increase cooperation among their representatives at international organizations to further mutual interests.
Recently, Indian Finance Minister P Chidambaram cleared the air on speculation about several matters related to India's economic policies and future reforms related to China.
"I lean in favor of investments from China," said Chidambaram. "Each case must be seen on its merits, and foreign direct investments should not be stopped unless there are overriding security considerations."
The minister's remarks allayed some of the concern surrounding a new security-related investment law that could work against Chinese companies.
"No such law is being proposed. I have not seen it," he said when asked whether the National Security Council was drafting such a law. Beijing has been unhappy with New Delhi's blocking of Chinese firms from investing in ports and telecoms.
However, some observers are still skeptical and believe that any future cooperation can only be on a case-to-case basis to keep bid prices down. And when it comes to the critical question of energy security, nations will go it alone if they can. There is also a fear that India will invariably end up being the junior partner in such joint energy deals and lose out if there is any dispute.
Indeed, with all the talk of cooperation with China, the experience has not been entirely benign. Beijing has always been a tricky customer and the two countries remain cutthroat competitors, especially for energy resources. One example is Myanmar, where China was secretly dealing with Yangon to access gas, even as India's petroleum minister Mani Shankar Aiyer was in Beijing.
With PetroChina threatening to secure its share of gas from Myanmar, India is pushing the $3 billion pipeline through its northeast with the aim of skirting Bangladesh. GAIL has completed a feasibility report for laying a 1,400-kilometer pipeline from the Arakan state capital Sittwe to Gaya, Bihar state, via Mizoram.
The report paves the way for India to do a direct deal with Myanmar for gas. The prospects of a pipeline through Bangladesh, the cheapest potential option, looked uncertain as Dhaka refused to sign a three-nation memorandum of understanding unless it were to include trade and transit issues with India.
While China has been accommodating to India in the Shanghai Cooperation Organization, most agree that it is just some leeway to keep burgeoning Chinese trade exports to India well oiled. New Delhi knows that the battle for Central Asian energy resources will be bitter. Delhi has been developing independent links with Central Asian countries, with India's first military base to be operational in Tajikistan soon.
Some observers have drawn a parallel between US-China policy and Beijing's engagement of India. Washington has looked at China as a potential rival whose growth momentum cannot be contained and hence must be engaged in a constructive way that is good for business.
Beijing seems to have defined a similar approach toward New Delhi. Trade between India and China grew to $18.7 billion in 2005, up 37.5% from the previous year, and is expected to cross $20 billion this year. Not too long back, annual trade was just $1 billion.
But translating such economic goodwill into a strategic alliance that will extend to Beijing backing India on the Indo-US nuclear pact, support at the Nuclear Suppliers Group, a seat on the United Nations Security Council, or keeping away from supporting Pakistan's military program looks to be some way off.
New Delhi has always been wary of China's influence in its immediate neighborhood, specifically Pakistan. Islamabad recently declared that if Washington does not cede nuclear know-how to Pakistan, it will access the same from China. Beijing has kept quiet on the issue, a reflection of its keenness to keep Islamabad happy and counteract US influence through India, if needed.
Siddharth Srivastava is a New Delhi-based journalist.