The Hindu Business Line : A high-energy joint venture

THE DEAL ANNOUNCED between ONGC, the public sector oil major, and the Lakshmi Mittal Group, which has a string of steel manufacturing units the world over, is a reflection of the changed dynamics of doing business in the so-called Third World countries. In the era before the collapse of the Soviet Union when the idea of state capitalism had not been completely discredited among the developing countries, business deals were often the subject of visits by Heads of Government, and investments clothed in the rhetoric of bilateral economic relationships or held out as shining examples of South-South cooperation. The public sector has since yielded place to venturesome private capital that has not hesitated to stake money in these countries even when their political and economic affairs were in a state of flux and has emerged so successful as to earn the respect of the leaders of the host nations. That private capital also brings with it certain flexibility in the matter of business dealings — some thing that can never quite be matched by a wholly publicly-owned enterprises — is not without its attractions to the rulers in these countries.

India's quest for natural resources, especially oil, and the latest tie-up that ONGC has announced have to be viewed in this context. True, there will always be some role for international diplomacy in gaining access to the resources that some of the developing nations are so richly endowed with. But with these resources rapidly becoming scarce and competition among economies intensifying, India needs to pack its hand with other cards besides that of a nation that may one day occupy the high table reserved for the rich and the powerful among the comity of nations. The Lakshmi Mittal Group, which has emerged as an influential player in some of the countries that ONGC must be eyeing for a stake in their oil assets, can certainly help in this quest. Viewed thus, the arrangement makes for eminently good business sense. For the Mittal Group, too, the deal is not without its advantages. Oil/natural gas has a natural linkage with steel, given that energy is a key input in steel making. It is only to be expected, then, that the Mittals should tie-up with a company that has contributed in no small measure to India's technical expertise in the energy business. But quite apart from the obvious business advantage of bringing to the venture the technical know-how in exploration and refining of oil or extraction and processing of natural gas, the public character of ONGC's ownership commits the nation, in a political sense, to investments in developing countries that the joint venture may undertake.

Signing the Memorandum of Understanding was perhaps the easier part. Winning production concessions in developing countries and exploiting them successfully to generate profits will be the harder part. This calls for trust of the highest order between the joint venture partners especially on how the special investment vehicles that would be formed for individual projects are structured and managed. The two parties will have a challenge on their hands.

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