The Hindu Business Line : Oil India, IOC may adopt 2-model approach for buying assets abroad

New Delhi April 29 Oil India Ltd (OIL) and Indian Oil Corporation are likely to adopt a two-model approach to acquire oil and gas assets abroad — either through a OIL-IOC consortium or through a Special Purpose Vehicle the two plan to create.

While the OIL board has already given its in-principle nod to set up an SPV with IOC for overseas assets bidding, the IOC board is expected to take up the matter soon. Subsequently, the two companies would work out other details, such as where the company would be registered, name, and the capital base of the company. Both OIL and IOC would be equal partners (50:50) in the entity.

The Managing Director of OIL, Mr M.R. Pasrija, told Business Line that, "while the proposed SPV will look at producing and discovered assets, the consortium could pick up stake in exploratory assets."

Distinct advantages

Besides, keeping both the options open would be beneficial for the two state-owned entities, as the companies would not be restricted, he explained. A decision on whether to acquire an asset through a consortium approach or through the SPV route would be taken on a case-to-case basis, Mr Pasrija added.

Both the options have their distinct advantages. While under the SPV route the burden would not be on the parent companies' balance sheet, under the consortium approach the companies would enjoy tax benefits extended to exploration activities, industry experts said.

Apart from expediting the acquisition process, the SPV route would allow the companies to approach any prospective sellers as a single entity. The concept of SPV would not be new to both the entities, as currently the OIL-IOC consortium has to set up a project-specific SPV before acquiring an asset.

Under the current dispensation, the OIL-IOC combine as a consortium is allowed to invest up to Rs 300 crore after seeking approvals of the competent authorities — board approvals and Governmental nod — for acquiring assets. In keeping the consortium option open, OIL can also consider roping in other partners in those assets where IOC was not interested.

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