No 'Great Game' between India,
China By Pallavi Aiyar
BEIJING - Hoping to transform one of
Asia's biggest rivalries into one of the region's
most significant partnerships, Indian Petroleum
Minister Mani Shankar Aiyar arrived in Beijing on Wednesday for a
three-day visit. During his trip, a number of
memoranda of understanding (MoUs) will be signed
between Indian and Chinese energy majors. Both
sides are also expected to set up an institutional
mechanism, in the form of a joint working group,
to monitor the progress of cooperation and promote
its momentum.
Aiyar has long been an
advocate of Sino-Indian collaboration in energy.
At a time when world energy supplies are already tight,
bidding wars between Indian
and Chinese firms shopping in the same neck of the
woods have been pushing up the price of energy
assets. Over the past year Aiyar has thus
repeatedly called for greater cooperation across
the Himalayas in pooling resources and jointly
bidding for assets and investments in oilfields.
"We look on China not as a strategic
competitor but a strategic partner," said Aiyar in
an exclusive interview in Beijing. "It is clear to
me that any imitation of the 'Great Game' between
India and China is a danger to peace. We cannot
endanger each other's security in our quest for
energy security."
In addition to joint
bids in third countries, Aiyar will advocate
bilateral cooperation in exploring and exploiting
hydrocarbon resources, research and development,
sharing information on strategic storage and
stockpiling, and in the laying of national and
transnational pipelines.
However, despite
all the talk of collaboration, on the ground
Indian companies have consistently lost out to
cash-rich Chinese firms, which can dispense
government aid to secure deals as well as draw on
hefty credit lines from Chinese financial
institutions. Thus in the past two years, India's
Oil and Natural Gas Corp (ONGC) has been trumped
by Chinese firms in Kazakhstan, Ecuador and
Angola.
Just days before Aiyar's China
trip, top Chinese offshore producer CNOOC Ltd
announced it had bought a 45% stake in a Nigerian
oil and gas field for US$2.3 billion. ONGC was
also in contention for purchasing the Nigerian
block, but withdrew after India's cabinet raised
concerns over unspecified risks (see Curses, oiled again!, January
11).
In Beijing, Aiyar said he had no
regrets that China rather than India secured the
deal, since it was a deliberate decision on the
part of New Delhi to withdraw, given the risks
involved. "China in fact had to pay much more than
they would have liked to for the asset because
they needed to match our bid," he said.
In
another recent development detrimental to India,
Myanmar declined to supply natural gas to India -
crucial for the Myanmar-Bangladesh-India pipeline
- and instead, tied up with the Chinese firm
PetroChina (see Myanmar stiffs India on gas,
prefers China, January 12). According to
Indian media reports, Myanmar's Energy Ministry
has signed an MoU with PetroChina for the sale of
6.5 trillion cubic feet of gas from its AI Block.
In response Aiyar said, "Although this
looks like a setback, we will continue our efforts
with Myanmar. They [China and Myanmar] have only
agreed on an 'in principle' agreement which is not
a commercial commitment." He added that the AI
Block was only one of several properties available
in Myanmar, and India thus had other options to
pursue.
Despite Aiyar's optimism, analysts
point out that China has linked energy to its
foreign policy for longer than India and has been
more successful in diversifying its energy
resources, developing a varied network of oil
suppliers from Africa to Latin America. Moreover,
India is more vulnerable to supply disruptions,
given that it imports more than 70% of its
crude-oil needs as opposed to China's 40%. Thus,
while it is clear that collaborating with its
northern neighbor would be beneficial to India, it
is less obvious why Beijing should respond to New
Delhi's overtures.
According to Professor
Zhang Lijun, deputy director of the China
Institute of International Studies, China realizes
that it needs a "grand strategy to deal with India
as a rising power". Beijing is jittery about
India's new-found alliance with the United States,
particularly in the wake of US support for India's
civilian nuclear-energy development. Energy
cooperation with India is thus seen as a way of
binding New Delhi to Beijing, Zhang said.
There are also other, more commercial
reasons for cross-Himalayan collaboration. In
their bid to acquire as many assets as possible,
Chinese oil firms often overpay for assets. "They
have developed a blind strategy [to buy] more and
more without considering profit," said Zhang.
Competition with India only drives the prices
higher.
Thus, last August, China National
Petroleum Corp (CNPC) paid $4.18 billion to
acquire Canadian oil company PetroKazakhstan.
India's ONGC had bid $3.9 billion. Most analysts
feel that CNPC overpaid.
Aiyar also
stressed the commercial advantages that would
accrue to China were it to team up with India.
"The Chinese have learned that if we constantly
compete, they [often] have to pay more than a
billion dollars over [the] ideal price. As it is,
the assets they acquire are often of uncertain
value in risky countries."
Professor Xia
Yishen, director of the China Energy Strategy
Center, a government think-tank, concurs. He said
China is acutely aware that as its need for oil
imports grow, clashes with other countries also
looking to ensure energy supplies will become
increasingly common. "We realize that eventually
this will be harmful to all concerned, and so the
necessity of cooperating to share risks and reduce
costs in a multilateral way is gaining currency
here."
India and China already have some
energy-collaboration under way. Putting the
PetroKazakhstan episode behind them, CNPC and ONGC
won a joint bid last month to acquire 37% of
Petro-Canada's stake in Syrian oilfields for $573
million. India and China also work together in
Sudan, where CNPC operates the Greater Nile
oilfield, in which ONGC has a 25% stake.
Xia admits that in the past China has
tended to "go it alone with regards to energy,
relying on national champion firms and
state-to-state deals wherever possible". The
change in mindset toward collaboration will thus
take some time, he pointed out.
Aiyar also
allows for the fact that there will be times "when
the market dictates that companies submit
competing bids, but if there is sufficient
exchange of information along with the building of
trust and confidence, there will be more occasions
when we can work together".
Given the
current warmth of bilateral relations, the timing
for significant Sino-Indian cooperation is
perfect. Beijing and Delhi have not been closer in
decades. The year 2006 has been designated the
official year of India-China friendship. Days
before Aiyar's visit, Indian Foreign Secretary
Shyam Saran was in Beijing to conduct the second
round of strategic dialogue after the upgrading of
bilateral ties to a "strategic and cooperative
level" last April.
Analysts say that the
teaming up of the world's two largest developing
countries in the field of energy would give them
greater negotiating clout over any sellers. The
joint bid in Syria demonstrates that the Chinese
are open to collaboration when possible. Given
that India and China together account for some 35%
of the world's energy demand, the makings of a
powerful synergy may be in the pipelines.
Pallavi Aiyar is the Beijing
correspondent for the Indian Express
newspaper.
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