For Anil Agarwal, 57, chairman of the London-listed mines and metals firm Vedanta Resources, the Thursday announcement of completion of the $8.67 billion acquisition of oil & gas producer Cairn India, subsidiary of another UK-based company, Cairn Plc, must have come as a big relief. For 16 months, the time the deal was first mooted, it has been a roller-coaster ride for Agarwal, with the famous Indian red tape, backroom political manoeuvring and, not to forget, shadowy corporate rivalries at work. Not that Agarwal is new to any of this, having built Vedanta from scratch in the last three decades largely by acquiring mining and metal companies, often government-owned, against political opposition and stiff local competition. But, with another of his marquee projects, the one million-tonne alumina refinery at Lanjigarh in Odisha, embroiled in a long-drawn environmental fight with tribal people and the government, another trophy acquisition in Cairn not going through would have hardly done justice to Agarwal’s image of a smart and hard fighter. In a video-conference interview from Vedanta’s London headquarters, a visibly relaxed Agarwal spoke to Jyoti Mukul & Shailesh Dobhal on a host of issues. Edited excerpts:
Your experience in completing the Cairn deal, especially with the government?
I was not expecting (it to drag) that long but it is the largest transaction ever to happen in India. Cairn India was running well, but I never doubted that it will not happen. It is definitely a little late, but (as they say) der aaye durust aaye (better late than never).
At any point, did you ever feel the deal may come unstuck?
It was a (supposed to be a) smooth deal. Both the companies were outside India. Initially, we thought the permission is not required. But, the government said it was. We went with the motions. One of the things they wanted was royalty. It was a contractual agreement that had come with the incentive not to charge royalty. They asked for it. We debated. Finally, we accepted and things moved on.
Overall, I feel we (India) have better geology than China. Still, they produce 50 per cent of their oil and have 70 companies working there. Here, we have only three companies — two private and one government-owned. Here, we have only three companies — two private and one government-owned. We produce only 14 per cent of our oil and are importing at more than $110 a barrel when we can produce at less than $10. For energy security, we should make sure there is more interest in the oil & gas sector here from all over the world. We are leading the way to create that confidence by buying a company with a $16 billion valuation. We have done the transaction at such a tough time. We are writing a cheque of $8.67 billion. (Surely) it makes others feel there is a lot of potential in India. (In future) things will be better. I am optimistic. We produce the largest (amount of) aluminium, iron ore, zinc and now we are in oil & gas. We have experience. We have developed a greenfield project in Orissa by completing a $14 billion investment project. We have not got raw material yet. I have no doubt it will happen. Sometimes, patience is very important when you work in India.
You’re getting into a sector with price controls.
As far as we are concerned, we get our full price. The government is our partner. Out of $100 revenue, $81 goes to the government. My personal vision is that the Rajasthan basin should be as big as the Qatar oil reserve. That kind of geology is there. It is a phenomenal discovery. How long will you keep importing $110 per barrel (crude) oil when we fight for $1 every time the price increases. Now, ONGC is getting full royalty, things will be much smoother and together we will take it forward.
But, surely, the government’s condition on royalty must have upset your acquisition math?
We have accepted the royalty. We had to take the deal forward and look at the feasibility of what we were doing.
How do you plan to move forward? Would you set up a petroleum refinery?
I am focused on India’s oil security. With 1.2 billion people, we need to discover more oil & gas. We have a discovery in gas. Refinery is one thing we can look at but our focus will be oil & gas production. We are looking to double production of oil and discover more gas. We made a phenomenal discovery in Sri Lanka. We will go with the government of India (as partner in Cairn India) all over the world.
Will you use Cairn India as a vehicle for overseas acquisitions?
That’s the only vehicle we have. We would look overseas as well.
What is your outlook for Cairn India? Will you retain the existing management?
Every year, we acquire companies. We acquired Balco, Madras Aluminium, Hindustan Zinc, Sesa Goa and Konkola Copper Mine. Each of our companies is run by the same people. Nowhere have we changed. If it requires some adjustment, we make that. We work with the people. We are focused to do the best for the company. This company is in very good hands and we will take it forward. The company is running fine. It has a good board. We just finished the deal and have not taken any decision. At this point of time, the Cairn Energy board members are continuing.
Vedanta has grown largely through acquisitions. Is it time for consolidation now?
We have done greenfield investment in Orissa though we have made acquisitions of both private and government companies. It has been 50:50 (an equal spilt) between acquisitions and organic growth. (Right now) we have no other plan except to make sure each of our businesses stabilises, is fully funded and grows.
The world over, governments are getting sensitive about natural resources. There is a huge geopolitical risk in the businesses you’re in. How do you look at it?
We have to deal with it. Most of the countries want to have the same pattern, (essentially) similar royalty rates and similar laws. Countries are looking at their own agenda. We are not (yet) in any of these countries (Indonesia, Australia) where such problems are being faced.
But you did face an uncertain regulatory environment for Cairn.
We have dealt with the royalty issue. And if any changes are required, we will make them. I am fortunate I am part of the quest for (India’s) energy security. My focus is to discover more oil & gas (for the country).
How do you see your local competitors, Oil & Natural Gas Corporation and India’s largest private sector company, Reliance Industries?
ONGC is our 30 per cent partner (in Cairn India). We need more people (in the oil & gas sector). India produces only 14 per cent of its oil requirement. (Currently) there is not much competition. More competition will be better. There is so much required to produce for our energy security.
On your Lanjigarh, Odisha project, is it that the company did not engage enough with the local people and, therefore, it paid the price?
The first thing we do is to engage with the locals and that’s why we were able to invest. We have made the largest investment in India — Tuticorin, Orissa, Rajasthan and Goa. We could not set up a plant for seven years there but 25,000 people were working day and night and all were local.
At the same time, we have not moved an inch of grass but we have been told we are doing mining! It was probably an international agenda. Nobody in the world expected that such a project could come up in India but we invested $12 billion in the Orissa project.
Only three-four industries are coming up in India. We need at least 300-400 industries. We need oil, aluminium and steel security but that is diminishing. People are scared. We have democracy and there is also foreign involvement (in protests). People can come and comment anything. I am confident that each of our projects is a national project and will make India different. I am not worried that I am not (currently) getting bauxite. We will get all the approvals in time to come because that is the best project.