India's Aiyar eyes symbiosis with rival oil user China

Singapore (Platts)--30Nov2005

India's globe-trotting oil minister Mani Shankar Aiyar is readying to lay
the foundation for what could become the cornerstone of his unique brand of
oil diplomacy during a trip to Beijing in January 2006. 
     With Ma Kai, chairman of the Chinese state energy policy planner National
Development Reform Commission, Aiyar plans to sign an overarching memorandum
of understanding that would have the competing Asian giants join hands in
their quest for energy resources. Aiyar's trip has been tentatively scheduled
for Jan 10-16, and will begin symbolically at Kunming, the southeastern
Chinese city that received an oil pipeline laid from Ledo in India's
northeastern Assam state across northern Myanmar more than six decades ago,
and that fuelled China's liberation from Japanese occupation in World War II. 
     "I believe that China and India can cooperate across a range of matters
relating to the hydrocarbons value chain," Aiyar told Platts in an interview
conducted over two separate sessions around a ministerial roundtable of Asian
oil consumers and producers he had organized in New Delhi on Nov 25.   
     Significantly, one of four to five pacts that will be signed at the
corporate level under the umbrella ministerial MoU will call for Indian and
Chinese state companies to bid jointly for oil and gas assets. 
     "This won't be possible on every occasion," Aiyar conceded. "Market
circumstances might dictate that we end up competing. But we will keep each
other posted as far as possible, and discuss possible joint bids on a
case-by-case basis."
     "The theoretical proposition is that it is better for two principal
buyers to join hands and present a monopsony, if you like, to the monopoly of
the seller."

     $600-MIL 'KISSED AWAY' IN FIGHT FOR PETROKAZAKHSTAN
     The Indian oil minister cites the $600-mil he says China National
Petroleum Corp "simply kissed away" to trump a rival bid by an Indian
consortium and acquire Canadian independent PetroKazakhstan. 
     CNPC upped its cash bid for the player in Kazakhstan to $4.18-bil in
August, to top the original best offer from India's OMEL, a joint venture
between state-owned ONGC Videsh Limited and the private Mittal Group.
     Chinese state oil giants have so far had an edge over their Indian
counterparts in the search for energy resources because of a headstart and
deeper pockets. They have beaten Indian rivals in the race for some blocks in
Angola, Myanmar and Indonesia.
     But the Chinese see the importance of collaboration over confrontation,
Aiyar asserts, citing a string of discussions between his ministry and the
authorities in Beijing since early 2005.
     "If I hadn't had it confirmed through several conversations that I've
had, let's take it one-by-one--with the vice-chairman of NDRC who came [to
India] in January, then the team that accompanied the premier who came in
April, then the delegation I sent under Talmiz Ahmed [additional secretary in
the oil ministry] in August, and then the conversations we had with the
Chinese in Johannesburg at the World Petroleum Congress--if all of this had
not been put together, then I wouldn't be going to China."
     But it seems Indian and Chinese firms aren't waiting for the formalities
of Aiyar's January trip. News emerged last week that India's OVL and China
National Petroleum Corp have submitted a path-breaking joint bid for
PetroCanada's stake in Syrian oil producing assets, held in a consortium with
Shell and Syrian Petroleum Corp, and valued around $1-bil. OVL and CNPC are
50:50 partners in the bid.

     INDIA IN TALKS FOR KAZMUNAIGAZ'S STAKE IN PETROKAZAKHSTAN      
     India has not given up on PetroKazakhstan either. Aiyar, who last month
lashed out against the company's Canadian management and its advisor Goldman
Sachs for "lack of propriety and transparency" in the auction, says he also
lodged his complaint with the Kazakh oil minister, Viktor Shkolnik, during a
visit to the Central Asian republic in early October. 
     "I told Mr Shkolnik that I thought it was extremely unfair...He said he
was unaware, but since the company was Canadian, that's where I should take my
complaint." Ultimately, it was up to OMEL, which decided not to pursue the
case, the minister said.
     But a more "constructive" way going forward, and one that should yield
"some conclusion" in February next year, was for India to take a stake in
PetroKazakhstan assets to be acquired by the Kazakh government, Aiyar told
Platts. "Since it was the intention of the Kazakhstan government to obtain 50%
control over PetroKazakh and PetroKazakh assets, it is clear that on the day
it all comes together, there will be an opportunity for India to farm in to at
least the Kazakh-owned assets of PetroKazakh." 
     "And so I put in my expression of interest and it will take a while for
things to get sorted out." CNPC has agreed to sell 33% of PetroKazakhstan and
50% of the latter's Shymkent refinery to state-owned KazMunaiGaz.
     "We are going to have a major opportunity in February to come to some
conclusion, when the India-Kazakh joint mission [Joint Business Council] meets
here, in our country," Aiyar said. "Mr Shkolnik is my counterpart and
co-chairman. He has time between now and then." Aiyar will also use the
opportunity to discuss OVL's interest in two Kazakh exploration blocks in the
Caspian Sea, "unless the agreements are already tied up [by then]."

     FINDS AN ALLY IN TURKISH OIL MINISTER 
     The 64-year-old minister, who had built a long career in India's foreign
diplomatic corps before joining politics, emerged sanguinely optimistic from
the Nov 25 roundtable on cooperation between North and Central Asian producers
and the main regional consumers--China, Japan, South Korea and India.
     He used the occasion to reiterate his call to former soviet block
producers and the vital transit country of Turkey to pay adequate attention to
eastern markets, instead of focusing solely on Europe. While the message went
down well with the producers--Russia, Kazakhstan, Azerbaijan, Uzbekistan and
Turkmenistan--Aiyar found an especially strong ally in his Turkish
counterpart, Mehmet Hilmi Guler.
     "Hilmi Guler belongs to an Islamic conservative party and therefore has
some sense of discomfort with a purely Western orientation," Aiyar told
reporters in a post-event briefing. "He has become a great advocate," said
Aiyar, referring to a "north-south" oil and gas supply relationship he has
championed with Turkey over the past few months.

     SUGGESTS MORE GAS SUPPLIERS TO MAKE 'TAP' LINE VIABLE 
     At the roundtable, Aiyar flagged India's interest in joining the proposed
1,700-km Turkmenistan-Afghanistan-Pakistan or TAP gas pipeline project as the
final destination. New Delhi has until now been non-committal to receiving the
3-bil cu ft/day pipeline amid doubts expressed by Afghanistan and Pakistan
that Turkmenistan has enough gas available to make the venture viable, apart
from security issues posed by the passage through Afghanistan.
     Aiyar said the visiting Turkmen delegation had presented him gas reserve
estimates that could provide supplies into TAP "for years...decades," but
conceded it was not clear how the figures had been arrived at, or how much of
gas was already pledged on term basis to Russia.
     A way out could be for Azerbaijan, Russia, Kazakhstan and Uzbekistan to
pool their gas resources and make it an "ARUKUTAPI" pipeline, he told the
roundtable. In that event, Turkmenistan's Dauletabad field would not be just a
supply source, but "a junction that will collect gas from the east and west
and export it." The concept is at the heart of a pan-Asian oil and gas grid
mooted at the roundtable to afford security of supply and of markets to the
region's buyers and sellers, a "21st century Silk Route," in Aiyar's words.
--Vandana Hari, vandana@platts.com

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