NEW DELHI, AUGUST 23: China may have outbid the Indian ONGC-Mittal combine to acquire prime Kazakh oil firm PetroKazakhstan but less than a fortnight ago, New Delhi and Beijing got together to push forward a new phase in their energy diplomacy as both set out to quench their increasing thirst for oil and gas fields abroad.
According to official records, an Indian Joint Task Force visited China during August 8-13 and found strong support from Chinese state-run firms and the government to forge a ‘‘joint participation’’ for assets in third countries.
So far, the two nations have been outbidding each other for overseas projects. China takes the edge when it comes to bidding as it snaps the deal at any cost while Indian companies—all PSUs—have to justify, as per Government norms, that their investment provides at least a 12 percent rate of return.
One of the strongest voices for a partnership, significantly, came from China National Petroleum Corp which ousted the ONGC-Mittal combine from acquiring PetroKazkhstan by raising the bid to $4.18 billion after bidding lower than ONGC-Mittal’s around $3.9 billion.
Among regions identified by both countries for testing out a coordinated strategy are Africa, Central Asia, Latin America and the Middle East where, rather than hunt individually, the two are working on pacts between their government and among their companies to jointly pursue oil and gas fields.
The proposed tie-up has the blessings of China’s National Development and Reform Commission Vice Chairman Zhang Xiaoqiang who has ‘‘assured full cooperation’’ in entering into these pacts.
Though the specifics will shape up ahead of Petroleum Minister Mani Shankar Aiyar’s visit to China in November, the first thoughts are to constitute a Joint Working Group on Hydrocarbon Cooperation.
A draft MoU would be prepared and exchanged between both sides for setting up the JWG that will review the progress of company-level cooperation.
While agreeing to cooperation in investment in upstream sector and joint participation in third nations, CNPC Vice President Zhou Jiping agreed to India’s proposal for going together in Africa, Central Asia and Latin America.
He went a step ahead and announced two nodal officers for identifying the areas of cooperation even as the Indian team was found floundering for names.
Equally supportive during the talks was Sinopec which ousted ONGC Videsh Ltd from taking Shell’s 50 percent equity in Angola’s Block 18 by prodding the host government to pre-empt the deal, and later award it to Sinopec.
In fact, Sinopec Vice President Zhang Yaocang was the first to suggest the two-tier cooperation.
At the government level, he proposed an Energy Cooperation Committee for establishing a dialogue mechanism and a network for information while at company level, he suggested a Strategic Cooperation Agreement which could lead to joint bidding/equity participation in third countries.
With such cooperation, Yaocang was quoted as saying, any mega project could be handled jointly anywhere and by doing so, the two would have ‘‘more say in the international pricing mechanism’’.
‘‘Getting control of oil and gas is more important for the Chinese and in that endeavour, they bring to the table more than what the Indian companies can provide,’’ says a government official. The Chinese companies are backed by their government which provides development aid and loans to clinch the deal, he adds.
CNPC, which is OVL’s contender for EnCana’s oilfields and pipeline in Ecuador, has managed to keep OVL at bay in Russia’s Yugansneftegaz by providing a hefty loan in return for crude oil supplies for five years.
The two are still in race for equity in the company which Russia’s Rosneft acquired after Yugansk parent company's bankruptcy.