Financial Daily from THE HINDU group of publications
Friday, May 12, 2006
Financial Daily from THE HINDU group of publications Friday, May 12, 2006 |
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Petroleum Industry & Economy - Foreign Direct Investment `India desirable market for US' energy sector investments' Richa Mishra
New Delhi , May 11 Despite not having very large oil and gas reserves, India seems to be a desirable market for foreign investments. According to a recent poll by Ernst & Young, five countries — Norway, Canada, Qatar, India and the United Arab Emirates — emerged to have favourable conditions for US investments in the energy sector. Driven by high demand and pricing, interest in oil and gas exploration is surging across the globe. To meet the energy demands, US-based oil and gas companies are increasingly looking for opportunities outside the safety net of familiar political, economic and legal systems, and moving into countries with unpredictable rules, limited infrastructure, and shortages of skilled labour.
India favoured
According to Energy Information Administration figures, India has the smallest oil and gas reserves of all countries surveyed with just 10 billion barrels oil equivalent (BBOE). However, according to the E&Y poll, its rapidly growing economy and favourable foreign investment policies have helped India to attract significant oil and gas investments. The E&Y poll was conducted on 10 countries including China, Indonesia, Nigeria, Russia, Saudi Arabia, which are hot prospects for investment by US energy companies. The categories based on which the countries were rated were economic stability and tax administration, government structure and accessibility, legal and regulatory systems, infrastructure in place to support oil and gas operations and availability of educated and skilled workers.
Green light
The five countries, which received a `green light' in the poll, had all received a score of 80 per cent or more under the said categories. Norway and Canada led the green light countries with highest scores on the operational criteria. While all five countries seemed to have favourable operating environments for US energy companies, Qatar and the UAE also have oil and gas reserves that are among the largest in the world, the poll stated. Qatar has an estimated reserve of 168 BBOE and UAE has 123 BBOE. With a score of 84 per cent, E&Y team in India also reported some deficiencies in respect to workforce education and frequent political protests. Companies investing in India will also find an unreliable electric power system, the poll stated adding "but with its population surging — it is expected to surpass China by 2020 — even if the Indian economy were to stagnate, its consumption will increase, and drive exploration and production of its 10 BBOE."
Policy changes
Some of the policy changes, which would help further attract investment in the energy sector, include the New Exploration Licensing Policy. Major investment opportunities also exist in the development of gas transmission pipeline grid, LNG import facilities, trans-national pipelines, local gas distribution networks, downstream refining — in particular setting up export oriented units, and marketing of petroleum products.
Major Deterrent
However, in the downstream segment, Government's influence over retail pricing of petroleum products was pointed out as a deterrent for potential investors. Though India's urban communication network has witnessed a marked improvement, the infrastructural facilities still remain a cause of concern, the poll said. Overpopulation, environmental degradation, poverty, and illiteracy in rural areas also were pointed as potential roadblocks for smooth flow of investments into the sector.
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