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India, China Compete for Overseas Oil Assets

India's biggest state-run oil firm recently lost out to a Chinese company in a bid to acquire PetroKazakhstan - a Canadian oil company with substantial reserves in Central Asia. The deal underlined the growing competition between the two populous and rapidly growing Asian countries for oil and gas assets in other countries.

India's Oil and Natural Gas Corporation had reportedly put in the highest bid for PetroKazakhstan in the first round. But the deal swung in favor of China's National Petroleum Corporation, when it improved its offer to nearly $4.2 billion.

Disappointed officials from the Indian oil company say their bankers are assessing their options to see if they will be allowed to revise their bid.

The fierce competition for PetroKazakhstan underlines the urgency with which the two Asian giants, India and China, are trying to secure energy supplies in other countries. The two need oil and other resources in ever-increasing amounts as their economies and populations surge.

Sukh Deo Muni, co-author of the recently-published book India's Energy Security, says Chinese companies have the upper hand because they can clinch a deal at any cost, whereas India's public sector firms are bound by rules to show a reasonable rate of return on investment. He says China is also freer to offer developing countries aid.

"China certainly has a much larger scope to maneuver itself into the market," he said. "Even in terms of granting financial assistance and developmental help, China has a greater flexibility because they are not governed by the kind of financial rules and democratic accountability which India has to undergo."

Recently however there have been calls for the two countries to cooperate rather than compete in their search for new energy assets.

After losing the PetroKazakhstan bid, India's oil minister, Mani Shankar Aiyer, said China and India needed to adopt a "collaborative approach" to prevent acquisition costs from climbing higher. He says he will visit Beijing in November to discuss the two countries mounting joint bids.

There have already been some signs of such cooperation. In Sudan, India and China have invested in the same hydrocarbon exploration fields, with the Indians holding a smaller stake than the Chinese.

However, Mr. Muni feels that the prospects for such cooperation are limited.

"Collaboration cannot be a full answer because China is much ahead of India, and any country would like to have an independent access to energy, and, if China has a better control on energy in Asia, that gives China better influence on Asian affairs," he said.

India imports 70 percent of its crude oil needs, and is looking at larger requirements as its economy grows at about seven percent a year.