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DEBATE-No foreign investment in Indian E&P: Nothing to be apologetic about
Oct 11:
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The fact that India has not elicited a single response from a foreign company to its recent exploration rounds is, ironically, a cause for quiet celebration in some quarters of the E&P industry. There is a certain lobby, led now by BP's India head, Shashi Mukandan, which has subtly yet successfully created the perception that successive governments and their policy formulations are to blame for "scaring away" foreign investments.
8This argument is motivated by a simple rationale: BP is the last surviving foreign E&P investor of any significance in India whereas all others have abandoned ship. The subtext, which is more nuanced and is meant to keep the government under pressure, is that all road blocks, if any, that stymies BP in any manner in India should be cleared as quickly as possible. The undertone is that if BP is miffed, it will send the wrong signals to the international community. With just one foreign investor to deal with, the government finds itself on the defensive when it comes to dealing with the multinational.
8The oil & gas lobbying in the corridors of power in New Delhi is often very intense, and it is easy for policy makers to succumb to pressures. BP, partners with RIL in the KG Basin, and both often work in concert in putting the government on the mat.
8Immense pressure was put on Shastri Bhavan to break up GAIL into its trading and transmission divisions, which would have made it easier for the RIL-BP combine to access the Indian gas markets. To be fair to the petroleum minister, he resisted the temptation to do so after a point. He figured out quickly enough that gas trunk lines -- like the one from Jagdishpur to Haldia and to his home state would never have been constructed if GAIL was left weakened. More trunk lines have to be built across the country in an environment where the IRR will be uncertain or even negative, and GAIL is the only company which will build them. Then again, will the price of gas be cheaper if GAIL is divided up? Not really. Gas prices in India are determined by the price of LNG over which India has little or no control. Pipeline tariffs are set by the PNGRB. All that GAIL can do is charge a higher marketing margin but such are pressures of a demand-driven market that usurious margins will never be tolerated. If GAIL is accused of misusing its monopoly, the promoters of the privately built East-West pipeline have had to occasionally fend off charges of gross overcharging as well.
8BP is an immensely powerful global company. International arbitrations -- such as the one that accuses BP-RIL of siphoning away $3 billion worth of gas from an adjacent ONGC block in the KG Basin -- is meant to be adjudicated by an independent bench and yet allegations were flung that one of the names meant to chair one such arbitration had links with BP. Eventually, the BP-RIL combine did win the award. The ruling also said that the government must also pay back the fat arbitration fees that BP-RIL duo incurred during the battle.
8Lobbying is a complex art and no one has mastered it better than BP. The multinational currently works in 72 countries and understands all very well how to control or persuade governments to do its biding. Once the award was announced, questions were raised in the corridors of power on the futility of opposing it. It would send the wrong signal to the investing world, it was silently argued, at a time when India was pushing for easier ways of doing business. The rule of international law would have no sanctity, the argument went.
8The government has done well in standing its ground, using all its legal prowess to challenge the arbitration order. And it really does not have anything to fear. Despite all the tall talk, BP's current investment in the KG Basin is not in billions of dollars. It is a mere $600 million, about the cost of a medium sized onland development programme of ONGC. The BP-RIL investment is modular in structure, after an initial $2 billion pump-in by the two partners (BP has a 30% stake), the proceeds of gas sales will be used to scale up the investment subsequently.
8The Indian government does not need to be apologetic if no foreign investments have come in during the new exploration rounds. This may well be because Indian sedimentary basins are not as prospective as others around the world at this point in time despite an enabling regulatory framework.
8Yes, some of the largest E&P companies in the world, from Shell to Total to Gazprom to BHP Billiton to ENI have tried their luck in India and all them went back without any success. But there is no reason for anyone to feel guilty about their departure. These companies dug ( or tried to) for oil, they did not find it, so they left. It is as simple as that. To put the blame on faulty policies is nothing but a facetious attempt to divert the debate and score a few brownie points.
8There is yet another point to note. BP is in India because it is compelled to do so. Having spent over $8 billion in India, its return on investment is highly negative. BP shareholders are going to raise a stink if they just pack up and leave, as they would have had, had they not sunk so much money into the frothy waters of the Bay of Bengal. Eventually, BP is unlikely to recover its investment but it must put up a facade that it would.
8Finally, India is too large a country for anyone to ignore. Fresh business development teams have been brought in recently by the likes of Exxon Mobil and Shell to New Delhi and Mumbai to tap India's vast potential. Others multinationals will follow suit. And if BP were to occasionally throw a tantrum, the advisory to the government will be to just ignore it
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The fact that India has not elicited a single response from a foreign company to its recent exploration rounds is, ironically, a cause for quiet celebration in some quarters of the E&P industry. There is a certain lobby, led now by BP's India head, Shashi Mukandan, which has subtly yet successfully created the perception that successive governments and their policy formulations are to blame for "scaring away" foreign investments.
8This argument is motivated by a simple rationale: BP is the last surviving foreign E&P investor of any significance in India whereas all others have abandoned ship. The subtext, which is more nuanced and is meant to keep the government under pressure, is that all road blocks, if any, that stymies BP in any manner in India should be cleared as quickly as possible. The undertone is that if BP is miffed, it will send the wrong signals to the international community. With just one foreign investor to deal with, the government finds itself on the defensive when it comes to dealing with the multinational.
8The oil & gas lobbying in the corridors of power in New Delhi is often very intense, and it is easy for policy makers to succumb to pressures. BP, partners with RIL in the KG Basin, and both often work in concert in putting the government on the mat.
8Immense pressure was put on Shastri Bhavan to break up GAIL into its trading and transmission divisions, which would have made it easier for the RIL-BP combine to access the Indian gas markets. To be fair to the petroleum minister, he resisted the temptation to do so after a point. He figured out quickly enough that gas trunk lines -- like the one from Jagdishpur to Haldia and to his home state would never have been constructed if GAIL was left weakened. More trunk lines have to be built across the country in an environment where the IRR will be uncertain or even negative, and GAIL is the only company which will build them. Then again, will the price of gas be cheaper if GAIL is divided up? Not really. Gas prices in India are determined by the price of LNG over which India has little or no control. Pipeline tariffs are set by the PNGRB. All that GAIL can do is charge a higher marketing margin but such are pressures of a demand-driven market that usurious margins will never be tolerated. If GAIL is accused of misusing its monopoly, the promoters of the privately built East-West pipeline have had to occasionally fend off charges of gross overcharging as well.
8BP is an immensely powerful global company. International arbitrations -- such as the one that accuses BP-RIL of siphoning away $3 billion worth of gas from an adjacent ONGC block in the KG Basin -- is meant to be adjudicated by an independent bench and yet allegations were flung that one of the names meant to chair one such arbitration had links with BP. Eventually, the BP-RIL combine did win the award. The ruling also said that the government must also pay back the fat arbitration fees that BP-RIL duo incurred during the battle.
8Lobbying is a complex art and no one has mastered it better than BP. The multinational currently works in 72 countries and understands all very well how to control or persuade governments to do its biding. Once the award was announced, questions were raised in the corridors of power on the futility of opposing it. It would send the wrong signal to the investing world, it was silently argued, at a time when India was pushing for easier ways of doing business. The rule of international law would have no sanctity, the argument went.
8The government has done well in standing its ground, using all its legal prowess to challenge the arbitration order. And it really does not have anything to fear. Despite all the tall talk, BP's current investment in the KG Basin is not in billions of dollars. It is a mere $600 million, about the cost of a medium sized onland development programme of ONGC. The BP-RIL investment is modular in structure, after an initial $2 billion pump-in by the two partners (BP has a 30% stake), the proceeds of gas sales will be used to scale up the investment subsequently.
8The Indian government does not need to be apologetic if no foreign investments have come in during the new exploration rounds. This may well be because Indian sedimentary basins are not as prospective as others around the world at this point in time despite an enabling regulatory framework.
8Yes, some of the largest E&P companies in the world, from Shell to Total to Gazprom to BHP Billiton to ENI have tried their luck in India and all them went back without any success. But there is no reason for anyone to feel guilty about their departure. These companies dug ( or tried to) for oil, they did not find it, so they left. It is as simple as that. To put the blame on faulty policies is nothing but a facetious attempt to divert the debate and score a few brownie points.
8There is yet another point to note. BP is in India because it is compelled to do so. Having spent over $8 billion in India, its return on investment is highly negative. BP shareholders are going to raise a stink if they just pack up and leave, as they would have had, had they not sunk so much money into the frothy waters of the Bay of Bengal. Eventually, BP is unlikely to recover its investment but it must put up a facade that it would.
8Finally, India is too large a country for anyone to ignore. Fresh business development teams have been brought in recently by the likes of Exxon Mobil and Shell to New Delhi and Mumbai to tap India's vast potential. Others multinationals will follow suit. And if BP were to occasionally throw a tantrum, the advisory to the government will be to just ignore it
