Oil India suggests SPV alternative to Oil India Videsh

Vol 9, PW 17 (01 Dec 05) People & Policy
     

Oil India is fighting moves to set up an overseas arm similar to ONGC Videsh.

PETROWATCH learns that senior management led by chairman RK Dutta is firmly opposed to the creation of Oil India Videsh, recommended by two successive government panels over the past few weeks as a way to ensure that India meets 15% of its crude imports from equity oil over the next two to three years. Oil Indias opposition stems from unease that the risk of any overseas arm will reflect in its modest balance sheet, as happens with ONGC Videsh, which has funded its impressive run of overseas acquisitions solely on the strength of its parent companys abundant cash pile, which is no match to Oil Indias.

Instead, senior management sources at Oil India tell us they want to insulate the companys balance sheet from the risk of overseas exploration and production ventures by setting up a project-specific Special Purpose Vehicle for each country it enters. Oil India believes this would enable it to benefit more from tax savings and concessions in the country it chooses to operate than if it were to set up an Oil India Videsh that relies solely on the company balance sheet.

Over the past few months Oil India has come under increasing government scrutiny as an under-utilised asset in Delhis aggressive policy of securing energy supplies through the acquisition of oil properties abroad. Last week, a Group of Ministers from the Indian cabinet agreed a demand from Oil India (reported in our last issue) that the junior explorer be allowed to form alliances with downstream refiners Hindustan and Bharat Petroleum in its search for oil equity abroad.

Until now, Oil India was only permitted to form an alliance with Indian Oil. Ministers also agreed to give Oil India the same financial power as ONGC Videsh and hiked the amount the company can invest abroad without government approval to Rs300cr ($66m).