Indian Oil corporation headquarters, Delhi. Photo: Ramesh Pathania/Mint
Utpal Bhaskar Live Mint :Thu, Mar 07 2013. 11 39 PM IST
Companies worried about the country’s hydrocarbon policy in the aftermath of President Hugo Chavez’s death
New Delhi: State-owned ONGC Videsh Ltd (OVL), Indian Oil Corporation Ltd (IOCL) and Oil India Ltd (OIL) are concerned about their investments in oil-rich Venezuela in the aftermath of President Hugo Chavez’s death.
These companies, which have invested billions of dollars in the South American country, have little option but to wait and watch whether the post-Chavez regime continues its hydrocarbon policy.
“We have asked our people to carefully watch the situation and advise us,” said T.K. Ananth Kumar, director, finance, at OIL. “We are carefully looking at the situation and taking appropriate action.”
Vice-president Nicolas Maduro is expected to contest the next presidential election against Henrique Capriles, governor of Miranda state, who lost to Chavez in last October’s poll.
With the election to be called within 30 days, under the Venezuelan constitution, and conventionally falling on a Sunday, it is expected to take place on 31 March.
Some significant investments made by the Indian firms in Venezuela include the one as part of a global consortium that is developing the Carabobo 1 Norte and Carabobo 1 Centro blocks in the Orinoco region.
OVL, IOC, OIL, Spain’s Repsol YPF SA and Malaysia’s Petroliam Nasional Bhd (Petronas) are partners in the $13.63 billion project, where OVL, Repsol and Petronas each hold an 11% share, and IOC and OIL hold 3.5% each. The remaining 60% stake is owned by Corporación Venezolana del Petróleo (CVP), a unit of state-owned Petróleos de Venezuela SA. Initial production has started at this project.
Also, OVL has a 40% stake in San Cristobal project along with CVP, where it has made an investment of $355.7 million.
“There is likely to be continuity between the regimes. One thing that bodes in favour of investors is that the new person may look at things dispassionately,” said D.K. Sarraf, managing director of OVL. “At the same time, there are immediate short-term risks such as forex and economic concerns.”
Private sector refiners such as Mukesh Ambani-owned Reliance Industries Ltd (RIL) and Essar Oil of the Ruias are the largest importers of Venezuelan crude oil. Venezuela has emerged as an important source of crude imports for India and supplied 15.14 million tonnes (mt) from April till December , as curbs imposed by the West on Iran for its suspected nuclear weapons programme affected sales of Iranian crude.
An RIL spokesperson didn’t respond to questions.
“Essar Oil enjoys good relationship with Petroleos de Venezuela SA, the state-run oil firm of Venezuela, and we understand that this development should not impact supply of crude from Venezuela to Indian refiners,” an Essar Oil spokesperson said in an emailed response.
Essar’s Vadinar refinery and RIL’s Jamnagar refinery are among the few facilities capable of refining heavy oil from Venezuela’s Orinoco region.
“There will be some confusion initially. Everybody is careful and watching how things evolve,” an IOC executive said, requesting anonymity. “It will be interplay of various forces. Given the fact that hydrocarbons are the biggest source of revenue for Venezuela, ultimately it is the economics that will bind people.”
Interestingly, Maduro has an Indian connection. He is a devotee of the late Sathya Sai Baba and visited Prasanthi Nilayam ashram in Puttaparthi, Andhra Pradesh, in 2005 along with wife Cella Flores, according to professor A. Anantharaman, spokesperson of Sri Sathya Sai Central Trust.
Supplies from India’s domestic energy sources are limited and the country depends heavily on imports—as high as 80% for crude and 25% for natural gas.
India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) today to around 1,500 mtoe, according to the oil ministry.
“The succession issue is very important, given the fact that the predecessor’s policies will be followed or not. One has to act diligently,” said Anil Razdan, a former special secretary in the petroleum ministry.
An Indian government official said Venezuelan supplies to India were unlikely to be affected. He declined to be named.
The concerns come in the backdrop of India’s overseas equity investments suffering even as Indian state-owned firms invested Rs.64,832.35 crore towards the overseas energy security efforts.
“ONGC Videsh Ltd (OVL) has produced about 8.753mmt of oil and equivalent gas during the year 2011-12 from its assets abroad in Sudan, Vietnam, Venezuela, Russia, Syria, Brazil, South Sudan, and Colombia. The estimated crude oil and natural gas production in 2012-13 is about 6.865 million metric tonne (mmt). The reasons for lower overseas production are geopolitical problems in South Sudan and Syria,” said the economic survey presented last month.
OVL’s D.K. Sarraf said that in an attempt to lower political risks, the company had invested in properties in different parts of the world, being ruled by different types of governments.
Yogendra Kalavalapalli in Hyderabad contributed to this story.
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