Six years can make a big difference in the energy world. Deals by Indian energy and utility companies abroad have soared and compare favourably against China and Russia.
Data gathered for Business Line by analytics firm Dealogic show that since 2006 Indian utility and energy companies have made $5,112 million worth of acquisitions outside BRIC nations, against $6,001 million by Russia and $ 7,436 million by China (Brazil's figure is far lower at $704 million).
While investment worth $5,870 million was made in India's energy and utility sector between 2001 and 2011(to date) the figure for outbound investment is even higher at $7,112 million. The inbound figure will change once the Reliance Industries-BP deal is formalised. In 2005, when the China National Offshore Oil Corporation was trying to score an $18-billion deal to acquire the Union Oil Company of California, then, recounts Mr Deepak Lalwani, Director, India at London-based consultancy, Lalcap Ltd, “I remember thinking India wasn't even in the picture. It was seen as a back-office place and China the frontline acquirer”.
Today, deals have happened across private and public sectors. Indian oil companies are present in around 20 countries. The total investment by oil PSUs alone is around Rs 64,832 crore. The hydrocarbons hunt overseas is a cornerstone of India Hydrocarbon Vision 2025.
“There is a huge hunger for energy security in India that is driving the need for acquisitions,” says Mr Lalwani.
With rising demand, the quest for resources is hotting up. India's crude oil output is around a quarter of the figure imported (163.58 million tonne). Last year, KPMG warned that India could face a 189-million-tonne coal shortfall by 2015.
“Companies have no option but to scout for assets, as we are dependent heavily on imports,” says Ms Kalpana Jain, Senior Director, Deloitte India.
Others argue that with the oil and gas blocks auction rounds in India becoming too competitive, companies are looking abroad for better return on investment. “The reason why the domestic companies are going overseas in their hunt for hydrocarbons is because all want to hedge their risk,” adds Mr Gokul Chaudhri, Partner of New-Delhi based BMR & Associates.
Foreign companies can also be very enticing in the current economic conditions. Essar Energy has justified its recent acquisition of UK's Stanlow refinery precisely because of weakness and closures in the European refinery sector.
So far, India has not faced some of the hostility that global powers such as China and Russia have encountered. The low-key nature of the Indian firms involved means a much higher level of acceptance than those of other countries.
Says Mr Anuj Chande, London-based head of the South Asia group at business advisory firm Grant Thornton UK, “Indian firms tendency to keep much of the existing management systems in place also helps maintain good relations in local markets”.
“While China is seen as a centrally controlled economy, the feeling towards India is that it is far more open,” says Mr Jonathan Keeling, CEO of Arden Partners, a London-based stockbrokerage with increasing focus on India.
Inward investment
However, inward investment is a different matter altogether: There are few who could ignore the soap opera-esque twists in the Cairn-Vedanta deal.
Whether or not ONGC's royalty payments should be shared is a matter of interpretation. But the withdrawal of arbitration — a condition set by the Government for the deal to go ahead — is seen as a bit of arm-twisting.