by R. Sasankan
Saudi Arabia appears to have kicked off a big petro-dollar investment
craze for large refinery and petrochemical projects in India. When
petroleum minister Dharmendra Pradhan had first started to drum up
investor interest in a big-ticket mega refinery project on India’s west
coast, many had dismissed it as just another pie-in-the-sky dream. No
one had really believed that he would be able to persuade Saudi Arabia
to pick up a 50 per cent stake in the proposed 60 million tons per annum
project. But when the Saudis interest was piqued and they decided to
stump up the money, it surprised everyone in government and caused a
stir in the refinery and petrochemical industry.
Saudi
Arabia is going through a phase of radical reform – a time when it has
started to quickly jettison stuffy, dyed-in-the-wool notions about
governance, investment and socio-cultural practices and embrace
out-of-the box ideas to shake up traditionalist thinking in the rich,
oil kingdom. Saudi Arabia has become a hothouse of surprises in recent
months. But an investment on such a massive scale had never been
expected in a country that has never been on its investment radar.
Clearly, there must have been long and deliberate deliberations on this
proposal before they decided to commit the funds.
India has been buying crude from the Middle East countries for many
years as the region had been geographically close to it. The leadership
in India – dating back to the regime of Indira Gandhi – had tried but
failed to attract big petro-dollar investments. The Middle Eastern
oil-rich countries have always looked to the West for investment
opportunities, a fervour that remains undiminished. But India has
managed to chip away at the reservations that these countries had about
investing in India, largely because of the fact that it has since
emerged as one of the world’s fastest-growing economies and is currently
the third largest importer of crude.
All this has been written about fairly extensively. But an innocuous
question that was raised by an oil industry executive at an informal
get-together in Delhi recently piqued my interest and forms the basis
for this article. There have been a number of reports in the media
suggesting that the UAE may also be eager to pump money into the west
coast mega refinery project. The UAE has already signed a deal with
India to fill up a part of the large crude storage tank at Mangalore in
the state of Karnataka and has also roped in an Indian PSU as its equity
partner in a major oilfield that it plans to develop. The question was
about Kuwait. Would it also be keen to join the mega refinery since it
also has been scouting for investment opportunities in India’s refinery
sector?
I
decided to bounce this question off to a few oil industry experts who
know the Middle East well. My understanding about these three countries
was superficially right: all the three Middle Eastern nations are very
friendly with the US and opposed to Iran. In the Middle East, the
perception is that it is Saudi Arabia that is fighting Iran, a Shia
country, and, therefore, Kuwait should not have any problem in joining
the mega refinery project as an investor. But that assessment is based
on an insufficient understanding of the reality in the Middle East. Soon
after Saudi Arabia decided to invest in the mega refinery, Kuwait
started scouting for refinery projects in India where they could invest.
It was not looking for new refinery projects but actually scoping out
opportunities in existing PSU refineries. It had almost zeroed in on the
Bina refinery project which is a joint venture between the stated-owned
BPCL and Oman Oil Company.
The reason is simple: Kuwait is different, and the Kuwaitis consider
themselves to be superior to the Saudis. Such cultural differences exist
in many parts of the world: the Swedes consider themselves to be
superior to the Finns, and the French have a similar perception about
the English. But the differences between the Saudis and the Kuwaitis run
a lot deeper. These experts believe that Kuwait isn’t close to Saudi
Arabia at all. They have never opted to collaborate while investing
large sums of money in any project across the world. “If Kuwaiti
investment is of the same order as the Saudis, then Kuwait will want
control. And that will simply not be acceptable optically to the Saudis.
The Saudis see themselves as the undisputed leaders of the Gulf nations
which will not be acceptable to the Kuwaitis,” said an acknowledged
expert on the Middle East.
This ought not to be a matter of great concern for Indian authorities.
In fact, such differences actually work in India’s favour. Saudi Arabia
has very ambitious investment plans for India and the refinery project
is just one of them. Kuwait will not allow itself to be left far behind
the Saudis. However, it will not try to get into a game of one-upmanship
with the Saudis.
Kuwait may decide to invest in the petrochemical sector as well. If the
investment plan for the Bina refinery does not work out, Kuwait may turn
to IOC’s Paradip refinery. In fact, Kuwait entered the Indian market 15
years ago and almost decided to invest in IOC’s Paradip refinery
project. It had even signed an MoU with IOC. It later withdrew from the
project following differences with the IOC management over the terms of
investment.
India has now become a major investment destination for petroleum
projects. Its growing economic clout has also strengthened its
bargaining position vis-à-vis investors. The Indian government is also
playing its cards well: it would like to attract investment from the
Middle East but it has no intention of dabbling in the internal politics
of the region. That is the best way to attract investments and avoid
controversy.