India Oil Groups Want Wealth Fund to Compete With China

India is facing demands from the local state-owned oil industry to create the country’s first sovereign wealth fund to compete with China in the race to secure global energy assets, according to government and industry officials.

The discussions under way between the oil and finance ministries to set up a sovereign investment fund were at an early stage, the officials said, and no deadline had been set.

The plan, if adopted, would repudiate an initiative pushed by New Delhi in 2006 for India to join forces with China in bidding on global energy projects to keep costs down.

India’s oil ministry and state-owned energy groups have told the government that funds from the country’s $278 billion of foreign exchange reserves would better equip them to compete with Chinese energy groups that have spent heavily offshore.

R S  Sharma, chairman of India’s state-controlled Oil and Natural Gas Corp, said creation of a sovereign wealth fund would boost India’s ability to secure energy deals offshore. He told the Financial Times: “[It] would be very good for India’s energy sector as it would help us expand our energy resources capacity. It would help us boost production and ... meet the country’s energy needs.”

India currently imports about 75 percent of its crude oil requirements, according to Murli Deora, the country’s oil and gas minister. The south Asian country imports more than 2m barrels of oil per day (bpd) and produces 700,000 bpd itself.

Last year, Chinese companies spent more than $30 billion snapping up assets around the globe, partly thanks to the backing of state financing, including the China Investment Corp, the country’s $300 billion-sovereign fund.

Chinese state-owned energy groups, such as PetroChina, the world biggest oil group by market value, have also been building their own reserves to fund offshore deals independently of CIC. In the same period, India’s ONGC took a 20 percent stake in Russia’s Sakhalin-1 oil and gas project and bought Imperial Energy, a London-listed group with assets in Russia, for $2.1 billion.

Last week, ONGC started talks with Gazprom and Rosneft over taking stakes in projects in Russia. It has also been seeking to expand its investments in Africa by developing oilfields in Angola, Nigeria and Sudan.

“India has a lot to learn from China when it comes to acquiring energy assets abroad,” said Arvind Mahajan, head of natural resources at KPMG in Mumbai. “Although India’s foreign exchange reserves are much smaller than China’s, it has enough funds to help Indian companies finance significant operations internationally.”

- Additional reporting by Jamil Anderlini in Beijing