Russia enters the Indian oil market

Russia enters the Indian oil market

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Rosneft acquires 49% in Essar Oil, the second largest oil refinery in India

Photo: TASS/AP/Manish Swarup

Saturday, October 15, at the BRICS summit in Goa in the presence of the President of Russia Vladimir Putin and Indian Prime Minister Narendra modi had announced a major international deal. The largest Russian oil company “Rosneft” and a consortium of international investors, which, in particular, will enter the Dutch commodities trader Trafigura and the Fund UCP Ilya Sherbovich, has announced the acquisition of 98% of the Indian refining company Essar Oil Ltd (EOL) from the family of billionaire Ruia. Rosneft will own 49% of EOL.

The transaction is expected to close before the end of this year or early next after approval by all regulators, and it fully complies with the international sanctions, the report said Trafigura.

Under the deal VTB Bank, which advises shareholders of Essar Oil, will provide $3.9 billion for debt restructuring, told reporters the head of the Bank Andrey Kostin, has transferred “Interfax”.

“Rosneft” will pay for their share of about $3.5 billion, told “Izvestia” the representative of the Russian oil company. According to him, Rosneft has the ability to pay their own money, but the company can also attract debt financing.

The cost of the whole transaction will be determined based on the actual net debt and net working capital at the closing of the transaction and may be about $12.9 billion (with debt), of which the value of refining assets and gas complex will be $10.9 billion and $2 billion investors will pay for the port Vadinar and related infrastructure, the report said Essar.

EOL owns a large network of filling stations in India, with 2.7 thousand stations operating under the brand Essar. Earlier, India abolished the regulation of pricing in the retail market that opens up prospects for effective growth of the retail sales — EOL plans to significantly expand the network.

But she owns one of the most modern refineries in Asia and the Pacific in Vadinar, which has a complex infrastructure and processes 20 million tonnes of oil per year. The acquisition of shares in the largest and most modern refineries of India will allow “Rosneft” to enter the promising Indian market and opens the way for effective development in the Asia-Pacific region, confident in the Russian company. After closing 40% of the plant’s production will be directed outside of India.

Project creates unique synergistic opportunities for existing company assets and planned projects of Rosneft and opens the prospects for increasing efficiency of deliveries to the markets of other Asia-Pacific countries, such as Indonesia, Vietnam, Philippines, Australia, — said CEO of “Rosneft” Igor Sechin, commenting on the conclusion of the transaction.

Rosneft will have the right to participate in corporate governance bodies. Key decisions will be made by the Board of Directors, said the representative of “Rosneft”.

“Rosneft” will be able to process at refineries in India, heavy oil from Venezuela and to implement cross-supply of petroleum products to Asia-Pacific markets that will enhance the economic efficiency of the refinery, said Rosneft. The new owners of the refinery will also discuss the possibility of expanding its capacity.

Rosneft, in turn, attracts investors from India in their projects. At the same time on 15 October, India’s ONGC Videsh signed an agreement on the preparations for the closing of the transaction on purchase “Rosneft” additional 11% stake in “Vankorneft” for $930 million as a result, the share of ONGC in the project will rise to 26%, while the share of state-owned companies of India will be 49%. Also, Rosneft has closed the acquisition of the Indian consortium of 29.9% shares in the project TAAS-Yuryakh in Eastern Siberia. “The involvement of partners in Eastern Siberian projects not only provides investment, allows to share risks and funding, but also leads to an increase of Russia’s share in the fast-growing Asian markets, as an incentive for long-term contracts”, — reported in “Rosneft”.

According to the International energy Agency, India by 2040 will become the world’s main driver of growth in the motor fuel market, its daily consumption in this country will double and will amount to 10 million barrels in 2017 gasoline consumption will grow by 12%.