India, China compete in Africa for oil

India, China compete in Africa for oil Priyanka Bhardwaj and Michael J. Economides Africa is the latest place where the battle for energy sources between India and China has heated in the recent past. During an India-Africa summit in New Delhi this month, with representation from 15 African countries, it became clear that India needs to learn from China’s success in dealing with Africa, with estimates of 10 % of the world’s oil reserves and far better quality oil than the sulfur-loaded crude found in India. The African continent and its offshore areas are being eyed by oil companies because their geology has proven very prolific in the recent past. An August 2009 report by the London based Royal Institute of International Affairs (RIIA) on Asian involvement in Nigerian and Angolan oil industries stated that, “China’s deeper pockets have certainly put a brake on India’s ambitions.” Though Chinese firms’ and government’s greater money muscle gives them the upper hand in bids for energy blocks, savvy economic and political engagements may have a role to play. At the India-Africa Summit, it was pointed that China has also promised billions of dollars in cheap loans to Africa, besides multibillion-dollar deals for infrastructure development and even offered military support in return for resources. Estimates peg loans by China to fund Angola’s post-war reconstruction at $20 billion in 2009. In return China has managed to procure a lot of Angolan oil One of the Summit conclusions was that India should offer doles in niche sectors of its strength such as pharmaceuticals, software, industrial hardware in order to “sweeten deals’’ to win import rights for African copper, cobalt, diamonds, gold and most importantly oil. Indian firms have been making some inroads in Africa. State run oil major ONGC Videsh Limited (OVL), India’s largest oil exploration firm, has invested in assets in Sudan, Ivory Coast, Libya, Egypt, Nigeria and Gabon. OVL has already invested $2.5 billion in the Sudanese oilfields and is vying for a stake in at least one lucrative acreage in Ghana Private Indian firms such as Reliance Industries Limited have invested in Sudan and East Africa. The state owned Indian Oil Corp (IOC) and private entity Essar Group have invested in Nigeria and Sudan. Egypt has invited two Indian companies, Alkor and state entity Gujarat State Petroleum Corporation Limited (GSPC), to invest in areas of geological surveys, exploration and production of oil and gas. Egypt looks very attractive for natural gas. There have been 24 gas discoveries in that country since July 2008. Top firms are negotiating in Chad, Malawi, Niger, Angola and Mauritania. However these engagements are nowhere near China’s. Indo-African trade at $30 billion is half of China’s trade with the continent. Indian foreign investments are one fourth China’s. This is apart from the incentive of easy loans that China extends to African countries. From under $500 million in 2003 Chinese direct investment has risen to nearly $8 billion in 2008. Western observers have also pointed fingers at China for worsening repression and human rights abuses in Africa by supporting Sudan and Zimbabwe, all in the name of accessing natural resources. China has been a chief supplier of weapons in the war between the Sudanese government and rebels in Darfur, while importing oil. However, New Delhi has realized that it cannot let matters drift in Africa. Despite recent spurt in domestic supplies in oil and gas, demand for hydrocarbons in India far outstrips supply. India’s attempts to source gas via international pipelines from Iran, Turkmenistan and Myamar have not borne fruit. Thus, it is logical that Indian firms are looking at an aggressive push to tap Africa’s natural sources. Officials privately suggest that New Delhi should be open to playing a military assistance role if needed. At the very least they suggest an increase in India’s role as part of UN peacekeeping forces. During the India-Africa Summit, India’s federal petroleum minister Murli Deora said the country is “making a renewed push to open doors for Indian state-run firms in the African oil industry by offering to invest in building new refineries in return for gas and equity in oil fields.’’ Like China, Indian firms are in talks with Nigeria, the world’s eight biggest oil exporter, to build new refineries to develop the country’s downstream sector. India and China have been major buyers of Nigerian crude oil and won oil blocks last year. India is leveraging its infrastructure commitments in Sudan to secure energy blocks where again there is stiff competition from China. India is helping develop a 180 km rail link from Khartoum to Al-Masala-Mian. In the process, India is actively pursuing acquisition of equity stakes in 22 hydrocarbon blocks of Sudan. Questions, however, remain whether India will be able to take on competition from energy hungry, much richer and quick on decisions China. But some Indian optimism is warranted. New Delhi may be encouraged by ONGC’s successful acquisition of Britain’s Imperial Energy with assets in Russia. Recent agreements with Iran have also come through. This month ONGC Videsh Ltd and Hinduja Group signed accords with Iran to take 40 % interest in the $7.5 billion, Phase 12 of the big South Pars gas field, located 100 km in the Persian Gulf. But it remains to be seen whether India will be able to ramp it up in Africa. It will not be easy.