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Russia-India Energy Dialogue Traditions And Prospects

"Putin's visit to India demonstrates Moscow's resolve to veer its energy policy towards Asia. India may be attracted not only by Russia's rich resources, but also by its scientific and technical potential in nuclear power technologies. At the same time, India's interest in hydrocarbons may lead to greater cooperation in funding exploration and development of oil and gas fields in Russia. In turn, Russian companies will take part in marketing oil products and LNG in India."
by Igor Tomberg for RIA Novosti
Moscow (RIA Novosti) Feb 07, 2007
On the sidelines of the Russian President's visit to India, state-run Russian company Rosneft, and state-owned Indian Oil and Natural Gas Corporation (ONGC) signed a memorandum on expanding cooperation. Rosneft's official report says the two companies were encouraged by their positive partnership in the Sakhalin-1 project. ONGC will manage its operations through its overseas arm - ONGC Videsh Ltd. (OVL).

The power industry is the most promising field in bilateral strategic partnership. But this is not a bow to fashion. Cooperation is rooted in history. When India was badly short of energy after gaining independence in 1947, Soviet experts helped their Indian colleagues not only to prospect for oil, drill wells, and produce it, but also built the Indian power industry infrastructure.

Oil refineries were constructed in Ranchi, Koyali, Barauni, and Mahtura. As a result, the Soviet Union became India's number one supplier of crude oil, and India became its biggest trade partner among the developing countries.

In October 2000, Russia and India signed an agreement on bilateral strategic partnership, which revived the idea of large-scale energy cooperation. Owing to President Putin's personal intervention, Moscow made a political decision on OVL's involvement in the Sakhalin-1 project. In effect, OVL's 20% stake in the Sakhalin-1 oil field is India's only real project in Russia.

At one time, OVL promised to invest $25 billion into Russia's oil-and-gas industry, but has not paid a cent so far. Having spent more than $40 billion on oil imports in 2006, India has been futilely trying to increase its share in Russia's oil and gas industry for a long time.

On the eve of Putin's recent visit to New Delhi, many experts believed that India demanded a share in Russia's oil-and-gas sector in exchange for political loyalty and expansion of military-technical cooperation (MTC). In particular, Delhi wants to link the signing of major bilateral MTC contracts with OVL's involvement in the Sakhalin-3 project, and the development of the Vankor deposit.

Experts think that the Indian company has good chances of success, and that Rosneft will work with the partners which the Kremlin considers strategic, all the more so since one more step to meet OVL halfway would restore the balance in Russia's oil cooperation with India and China after Rosneft set up a joint venture (JV) with Chinese Sinopec. Earlier, this JV received permission to develop a small section in the Sakhalin-3 fields, and launched wildcat drilling.

The experts were right - Deputy Prime Minister and Defense Minister Sergei Ivanov, who arrived in India several days before Putin, said: "We are interested in Indian investment in the Sakhalin-3 project and in the development of the Vankor deposit in the Krasnoyarsk Territory." He said this, although his main task was to discuss prospects of bilateral MTC.

During Putin's visit, the Indians failed to implement their plan of getting involved in the Sakhalin-3 project, but reached a number of major agreements with Rosneft.

Rosneft and ONGC are planning to expand their cooperation both in Russia and third countries. They will study opportunities of joint oil exploration, production, transportation and export, and will jointly bid for oil and gas assets in Russia, India, and third countries. The two companies have also agreed to jointly consider refining and retail marketing projects in India.

Under the agreements, they will establish two joint study groups to implement the memo - one to develop upstream operations, and the other to handle downstream business. Experts predict that subsequent agreements may require further interference at top level.

Strategically, Rosneft cannot ignore the Indian market's high potential. Its President Sergei Bogdanchikov said: "It would be ideal to match Russia's growing production of hydrocarbons with India's growing market through dedicated JVs."

ONGC chairman and managing director R.S. Sharma added that the agreements reached during the Russian President's visit "will open up opportunities for both companies to work together in Russia, India, and third countries."

Indian Prime Minister Manmohan Singh expressed his government's readiness to offer Russian companies an opportunity to take part in Indian oil-and-gas projects. For the time being, foreign companies are not happy about their involvement in oil production in India - the local oilmen prefer not to put promising deposits into foreign hands.

For this reason, Rosneft is likely to limit its interests in India to oil refining projects. The Indians, like the Chinese, will have to allow Rosneft to take part in the distribution of oil products on the domestic market if they want access to assets in Russia.

Rosneft could invite its Indian partner to participate in shelf projects if it provides the financing. Similarly, Chinese CNPC was offered to take part in Russian Arctic shelf projects on the same terms.

One more Russian-Indian project in the energy field is a source of serious concern in the West. During his trip, Vladimir Putin paid special attention to vast opportunities for cooperation "in building facilities for gas production and transportation in India and the adjacent region." He was referring to the biggest and most politicized project in the oil-and-gas sector - the Iran-Pakistan-India gas pipeline with a price tag of seven billion dollars.

Gazprom has declared more than once that it is ready to take part in this project both as a contractor of feasibility studies, and as an investor. Its construction was supposed to be launched in the middle of this year, but Iranian-Pakistani political tensions and commercial considerations have impeded concrete agreements. The sides have recently moved forwards - India has agreed to buy additional amounts of Iranian liquefied natural gas (LNG) at higher prices.

For all intents and purposes, Russia is ready to make a political contribution to the project's implementation. The Russian President made an indirect reference to its importance for Moscow, and Sergei Ivanov said plainly during his Indian trip: "We are pegging big hopes on Gazprom-GAIL strategic partnership, including joint efforts in building the Iran-Pakistan-India gas pipeline."

Putin's visit to India demonstrates Moscow's resolve to veer its energy policy towards Asia. India may be attracted not only by Russia's rich resources, but also by its scientific and technical potential in nuclear power technologies.

At the same time, India's interest in hydrocarbons may lead to greater cooperation in funding exploration and development of oil and gas fields in Russia. In turn, Russian companies will take part in marketing oil products and LNG in India.

Bilateral energy cooperation rests on two major factors - historical traditions and the leaders' political will to upgrade it. Clearly, the commercial future of the projects is a question of time and effort.

Igor Tomberg, Ph. Dr. (Economics), leading associate of the Energy Studies Center at the Institute of World Economy and International Relations, Russian Academy of Sciences.

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