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Oil Ministry seeks fund for overseas buys

Cites tough competition, need for quick decisions.

Richa Mishra

New Delhi, Jan. 24

The Petroleum Minister, Mr Murli Deora, has written to the Finance Minister, Mr Pranab Mukherjee, to consider setting up a fund that will aid domestic public sector companies in acquiring oil and gas assets overseas.

“Competition in the overseas market is tough, and to establish a strong footing apart from quick decisions, huge investments are required. There is also a need to have a strategy. A focal point is required to pursue such acquisitions,” official sources in the know told Business Line.

The Petroleum Ministry has left it to the Finance Ministry to work out the details, including how the fund is likely to be created and the size of the corpus, among other things.

Sources said that at a recent presentation made before the Prime Minister, Dr Manmohan Singh, on the petroleum sector, Ministry officials had mooted the idea of having a core team and strategy in place for acquiring oil equity abroad.

Implementation and disbursement of the fund could be monitored by either the Prime Minister's Office or the Planning Commission, sources added.

Countries like China have a mechanism where funds are set apart for overseas acquisitions. Currently, Oil and Natural Gas Corporation's (ONGC) overseas investment arm, ONGC Videsh Ltd (OVL), has the power to take investment decisions of $75 million or Rs 300 crore (whichever is less). Investments beyond the permissible limit need to be approved by the Cabinet Committee on Economic Affairs.

OVL has been seeking more powers for its board to take investment decisions and to increase the current investment limit. The current investment limit, at times, was not sufficient to meet the requirements of exploratory projects, according to industry sources. The deals which OVL showed interest in were above $500 million (approx. Rs 2,310 crore).

In nearly 70 per cent of the deals, the buyers do not want to wait. As an organisation in the business of acquiring equity in oil and natural gas assets overseas, OVL could not afford to close such windows of opportunity, the sources added.

However, the Government did not let go of all the opportunities that came its way. A year ago, OVL acquired UK-based Imperial EnergyCorp Plc, where quick decisions were taken, sources said.

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