Raj Kapoor's Mera Naam Joker and its foot-tapping music is, at best, a frozen, forgotten moment of nostalgia for the average Ruski. Today, as the formidable Soviet Union, and its iron curtain, has made way for the modern-day Russia -- a dismembered, corruption-ridden, terrorist-driven country with an underperforming economy -- nostalgia itself is a nostalgic emotion. In the pragmatic dictates of contemporary power-play, old friendships have been discarded, and new camaraderie struck, based primarily on commercial self-interest. But, strangely, one association which has endured the ravages of contemporary Russian history is the Indian-Russian connection. And contributing, in some measure, to the cementing of this bond has been the historical cooperation between the two countries in the oil sector.
It was, after all, Soviet seismic experts who were responsible for ONGC's biggest discovery to date -- the Mumbai High field.In fact, the Soviets were single-handedly responsible for all the major crude discoveries of ONGC-- beginning in 1960 with the Ankeleshwar field, followed by Mumbai High, Kalol, Galeki, Lakwa....the list reads on. It was precisely this connection that Mani Shankar Aiyar tried to evoke in Moscow earlier this week when he proposed, to the Russian leadership, the renewal of old ties and the re-initiation of a partnership which could see the investment of billions of dollars of Indian money into Russia's cash-starved oil and gas sector. For, in the decade since the collapse of the Soviet Union, the roles seem to have been dramatically reversed.
Russian companies lost their foothold in India and instead, today, it is the cash-rich ONGC Videsh Ltd. (OVL) which is one of the biggest international investors in the exploration sector in Russia. It has, to date, pumped $1.7 billion in cash into the giant $ 12 billion Sakhalin-1 prospect -- in which ExxonMobil is a partner -- and $1 billion more is believed to be in the pipeline. Most international oil companies find Russia far too daunting a place to work in: The vestiges of the gargantuan Soviet-era bureaucracy and its multi-layered approval process, mountains of paperwork, low labour productivity, severe climatic conditions and an insistence that only local companies can execute contracts are the major pitfalls in working in the Russian oil and gas industry. The odds notwithstanding, OVL appears to be quite at home doing business in Russia. So much so that ExxomMobil depends on OVL's goodwill and clout with the powers-that-be in Russia -- to hasten the paper work and cut through the bureaucratic red-tape which would have normally held up work at Sakhalin.
Clearly, it's time for that one giant leap to change the dynamics of the relationship. Aiyar has already outlined an ambitious gameplan to his Russian counterpart: a joint bid -- likely to be worth $10 billion -- by Russian and Indian oil companies to buy out Yuganskneftegaz, the main production subsidiary of the controversial Yukos Oil Company, owned by the jailed oligarch Khodorkovsky; investments of up to $2.5 billion in the Rosneft's cash-strapped Primzlomnoye and Vankor oil fields; an offer to buy out the Severnaya Neft oil company which has licenses to develop 15 oil fields in Russia's Komi Republic and the Nenets Autonomous District; and a bid for the Sakhalin-3 license with an estimated 4.5 billion barrels of oil equivalent. If these investments go through, they will eventually total up to tens of billions of dollars and will go a long way in addressing India's oil security problem.
Given India's `most-favoured' relationship with Russia, there is no political downside -- unlike in places like war-torn Sudan or even Angola -- to these investments. What is more, a recent survey conducted for OVL by JP Morgan states that the investment climate in Russia has improved dramatically since 2001 and there is a significant reduction in country risk. This is evident from a fall in the sovereign bond yield in Russia, which has come down from 15% in 1999-2000 to 8% currently.
The lower discount rate, in turn, means that the IRR on the Sakhalin project has gone up, and not down, despite a sizeable increase in cash-sink requirements. In this context, it would be prudent for OVL to concentrate all its resources on garnering the Russian acreages. It is hoped the Indian government, lead by the redoubtable petroleum minister, will take full advantage of the situation, particularly when the oft-quoted Chinese competition is unlikely to be a factor here. Nostalgia, without doubt, has its moments.
Via: IndianPetro|By Santanu Saikia
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