Date:19/01/2005 URL: http://www.thehindubusinessline.com/2005/01/19/stories/2005011901060700.htm

Back Yugansk stake: ONGC faces legal perils, competition from China

Batuk Gathani

Brussels, Jan. 16

MUCH interest has been evoked in the European business media today about news that India's ONGC is currently engaged in delicate negotiations with Russia's nationalised oil giant Yugansk (Yuganskneftegas) for a large investment stake - around $1.5 to 2billion for some 15 per cent access to the Russian company's crude oil.

India is facing tough competition from China. With Russia and China now facing crucial oil cooperation, there is much speculation about the Russian Energy Minister, Mr Viktor Krishtenko's secret but low-key trip to meet Chinese officials in Beijing last weekend.

The meeting has aroused much speculation about future Sino-Russian cooperation in the oil and natural gas sector. A Western businessman based in Beijing structured the meeting and all parties have requested anonymity citing "sensitivity" of their dealings.

There are reports of "prolonged and complicated" legal complications and former owners have vowed to sue any buyers of Yugansk's assets in courts round the world. How much authority the Russian establishment in Kremlin has remains to be seen. Hence, future buyers of Yugansk assets are advised to "tread carefully in a minefield of legal complications."

According to observers, China National Oil company has been offered 20 per cent stake in Yugansk but there is much speculation about how and when the Russian authorities could give the company a new legal image.

India and China have an " insatiable appetite" for oil with their fast-rising economic profiles in the global market. India depends heavily on imported oil - almost two third or above 70 per cent of its oil needs. Hence, ONGC's stake in Yugansk, which pumps about a million barrels of oil a day, would be a big boost for India. ONGC with $29.55 billion market capitalisation, reported a profit of $ 1.93 billion in 2003. It accounts for 84 per cent of the country's oil and natural gas production.

ONGC has foreign operations in Myanmar, Vietnam, Iran, Iraq, Syria, Libya, Sudan and Australia.

There is fresh speculation about the possible revaluation of the Chinese national currency as China reports a record trade surplus in December, which has hit a nine-year high.

Latest revelation about the all-time high record US trade deficit in excess of $ 60 billion has hit the US dollar and there is much speculation about its future movement in the foreign exchange markets.

Analysts also point out that the record high US trade deficit has been triggered by US two-way trade with China. China now accounts for one quarter or 25 per cent of the US trade deficit.