On Monday morning, India brought in Abu Dhabi National Oil Company (Adnoc) as the second foreign investor, after Saudi Aramco, to invest in the proposed Ratnagiri Refinery & Petrochemicals (RRPCL) project. The estimated cost of the greenfield project is Rs three trillion.
It is ambitious. It demonstrates the interest among large oil companies in the downstream segment of India’s oil sector. It also goes against the recent changes in policy proposed by India’s finance ministry to instead attract foreign and domestic money in brownfield projects. Those changes are what the finance ministry is telling the world about at the third annual board meeting of Asian Infrastructure Investment Bank, in Mumbai on the same Monday morning.
In Budget 2018-19, finance minister Arun Jaitley had made clear the change in the policy of the government. “The Government and market regulators have taken necessary measures for development of monetising vehicles like Infrastructure Investment Trust (InvIT) and Real Investment Trust (ReITs) in India. The Government would initiate monetising select CPSE assets using InvITs from next year.” In consonance with this shift, the ministry of road transport and highways has profitably bid out nine completed roads for maintenance contracts garnering Rs 96.8 billion against an expected realisation of Rs 62.6 billion. The next sets of such projects are on the way, say road ministry officials.
But clearly Jaitley’s cabinet colleague Dharmendra Pradhan, minister for petroleum and natural gas feels there is still scope for furrowing the old route. On the same days when Pradhan is offering a contentious greenfield project to investors, the finance ministry in Mumbai has announced that AIIB will invest $200 million in one of the funds of India’s National Infrastructure Investment Fund. It is one of the three funds NIIF has floated to buy into infrastructure projects made ready for operations, by the central and state governments—brownfield projects. As NIIF’s CEO, Sujoy Bose said at one of the sessions, post construction assets give better return to the investors and the Fund is meant to galvanise such investments.
In other words, the Central Government, wiser after the poor quality of project management in many of the public -private partnership projects in the last decade, has decided it will first construct those and then bid them out. At a stroke it eliminates the risk of project delays as private builders invoke various excuses to justify those; it eliminates the risk of having to renegotiate the projects, a recurrent irritant for India’s infrastructure stories and keeps the bank balance sheets safe from having to finance delayed and bloated projects.
Around Ratnagiri, a fierce agitation against the land acquisition for the refinery has shaped up. There will now be a global audience to tune in to the problems, once foreign investors like Adnoc and Saudi Aramco come in, what ever their merit. And whatever will be the outcome, the agitations and their fall out are certain to delay the project. Even without the foreign investors, these delays were possible but by restricting the risk to the government, the reputation and therefore additional financial risk of those cascading on to other projects would have been minimised.
There are already precedents for the petroleum ministry to walk the brownfield route. Earlier this year, Pradhan’s ministry got an offer from Kuwait Petroleum International to buy a 24 per cent stake in Bina refinery, a 50:50 joint venture between state run BPCL and Oman Oil company. The expected premium will be useful for a cash-strapped government.
There is an even better option. The government, in last fiscal, went in for a financially debilitating merger between ONGC and HPCL that is now mired in corporate governance issues to raise Rs 340 billion to meet its fiscal gap. It is a far better option to monetise Mangalore Refinery and Petrochemicals Limited (MRPL) than take on its book the risk of a global joint venture like RRPCL. At current market cap, MRPL is worth Rs 154.05 billion and obviously there will be fat premium on it, when sold as foreign investors are demonstrating. It will be in line with the recommendations of the Vijay Kelkar committee report “on revisiting and revitalising the PPP model of infrastructure” that was commissioned by this NDA government. Kelkar had noted that risk allocation could be optimally distributed “across all stakeholders by ensuring that it is allocated to the entity that is best suited to manage the risk”. Kelkar, incidentally, was petroleum secretary in New Delhi for quite some years before moving to the finance ministry.
As the minister presides over the signing ceremony for the MoU with the United Arab Emirates counterpart, Sheikh Abdullah bin Zayed bin Sultan Al Nahyan, the minister for foreign Affairs & international cooperation, he might carefully ponder these options.