India and China hunger for African oil

by Priyanka Bhardwaj and Michael J. Economides

The nearly insatiable hunger for oil has led the world's most-populous countries to Africa.
And while China's efforts to tap Africa's oil resources are well known, India is trying to catch up.

Earlier during an India-Africa summit in New Delhi, which was attended by representatives from 15 African countries, it became clear that India needs to learn from China's success in dealing with Africa. The resource base is certainly attractive. Africa has about 10 % of the world's oil reserves and the oil tends to be of better quality than the high-sulphur crude found in India.
And while India may want to expand its investments in Africa, the Chinese are far ahead, a point made clear in an August 2009 report by the London-based Royal Institute of International Affairs (RIIA) on Asian involvement in Nigerian and Angolan oil industries which said that "China's deeper pockets have certainly put a brake on India's ambitions."

At the India-Africa Summit, it was pointed out 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 bn in 2009. In return China has managed to procure a lot of Angolan 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 invested $ 2.5 bn in the Sudanese oilfields and is vying for a stake in at least one exploration block in Ghana. Private Indian firms such as Reliance Industries Limited have invested in Sudan and East Africa.
Meanwhile, state-owned Indian Oil Corp and privately held Essar Group have invested in Nigeria and Sudan. Other Indian firms are reportedly negotiating in Chad, Malawi, Niger, Angola and Mauritania.

Egypt has invited two Indian companies, Alkor, and state entity Gujarat State Petroleum Corporation, to invest in geological surveys as well as in the exploration and production of oil and gas. Upstream companies are having good success in Egypt. Between 1999 and 2007, the country's gas production has more than tripled.
And while Indian firms are finding a receptive audience in Africa, they are still trailing far behind the Chinese. Indo-African trade, which now totals about $ 30 bn per year, is just half the level of China's trade with the continent and Indian investments in Africa are just one-fourth that of China's.

Between 2003 and 2008, Chinese direct investment in Africa soared, going from about $ 500 mm to nearly $ 8 bn. Western observers have also pointed fingers at China for worsening repression and human rights abuses in Africa by supporting the hyper-corrupt regimes in Sudan and Zimbabwe.
However, New Delhi has realized that it cannot let matters drift in Africa. Despite a 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 Myanmar 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 India 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." Indian firms are now in talks with Nigerian officials to build new refineries to develop the country's downstream sector. And Indian companies are trying to leverage their infrastructure commitments in Sudan to secure drilling rights. India firms are developing a 180-km rail link from Khartoum to Al-Masala-Mian. India is actively pursuing acquisition of equity stakes in 22 hydrocarbon blocks in Sudan.

While questions remain about India's ability to effectively compete against China in Africa, Indian firms are signing major deals elsewhere. This month, ONGC Videsh Ltd and Hinduja Group signed accords with Iran to take a 40 % interest in the $ 7.5 bn, Phase 12 development of the South Pars gas field. In addition, ONGC recently acquired Britain's Imperial Energy, which has significant assets in Russia.
Those deals are important, but it remains to be seen how influential India will ultimately be in Africa.