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Financial Times: India woos oil majors with eye on energy security

By Khozem Merchant in Mumbai
Published: March 27 2006 03:00 | Last updated: March 27 2006 03:00
As he begins his first overseas trip as India's energy minister, Murli Deora has a message for foreign investors.
“Those who had abandoned India must now be disappointed,” he says, mischievously declining to identify directly Royal Dutch/Shell, which in 2002 sold what turned out to be one of the country's richest oil-bearing blocks, in the princely state of Rajasthan.
For Mr Deora, a friend of big business in India's communist-supported government, the benefit of wooing foreign investment is a given. His first set-piece opportunity is today, when he launches India's largest sale of exploration blocks to the world's big energy companies.
“We want them [global exploration and production companies] to bring their technology for deep-water exploration, something not available [in India],” he told the FT in his first interview with international media.
Mr Deora's task will be to overcome global scepticism about India's oil sector. He was reminded of this last week when BP dumped plans to develop with state-run Hindustan Petroleum a $3bn refinery and a network of petrol stations.
The move illustrated how price controls on kerosene were not only shrinking commercial margins, but scaring away capital.
According to petroleum ministry advisers in New Delhi and people in the industry, Mr Deora has a good chance of at least arresting this trend, and one reason for this is the country's new regulatory regime for downstream activities.
To the surprise of analysts, India's parliament last week passed critical energy legislation that has been stuck in the legislature for nearly six years. The new law sets up a gas regulator with a mandate to police pricing and develop a national gas grid. It would also set up a “common carrier” regime, which would give gas suppliers access to all pipeline capacity and prevent duplication.
The law is the minister's ace card as he presents India's sixth “new exploration licensing policy”. This comprises the sale of 55 on-land and offshore blocks spread across 352,000 sq km. India's five previous rounds have conspicuously failed to yield major discoveries.
“There can be no gas market without pricing and no market without [pipeline] transportation, so the passage of this law effectively creates a market. This is the regulatory environment that foreign investors had sought in previous rounds, now they have it,” says an adviser to the minister.
Mr Deora identifies three challenges for India's oil industry: encouraging domestic exploration; securing overseas energy assets; and exploiting resources such as coal, of which Indian has an abundance, and nuclear energy.
He wants to persist with his predecessor's “positive” work on building “partnerships” with China. “We are two energy-starved countries, I want more joint bids and joint development with China,” he says, adding that collaboration could ease the competition bidding that has cost India, for example, dear. India lost out to China in recent bids for energy assets in Kazakhstan
Although he says he is “continuing [with my predecessor's] work” on a pipeline that links Iran, Pakistan and India and which is strongly opposed by the US state department, those familiar with Mr Deora detect a hint of ambivalence. Critics argue his deep ties with US policy-makers were one reason for his landing the energy portfolio.
Mr Deora also identifies himself as a “firm” supporter of Prime Minister Manmohan Singh's nuclear energy pact with the US. He sees the contribution of nuclear sources to India's energy mix tripling to about 6 per cent by 2022. On the US leg of his current trip, Mr Deora will address US congressmen to try to win support for the nuclear pact.
Mr Deora admits he has had to “adjust” to the realities of office. This has meant adopting the party position on subsidies “so fuel is within reach of the poor”.
One effect, at a time of rising crude prices, has been to damage the profitability of India's four main public-sector refining and exploration companies. Together, between April and December 2005, they lost Rs282.83bn ($6.5bn) because of retail fuel price controls. “I'd like to ease their pain, too, somehow,” he says.

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