BP-Reliance deal: India still needs foreign investment - Financial Times (blog)

The $7.2bn tie-up between the UK's BP and India's Reliance Industries is yet another example of Reliance head Mukesh Ambani's big ambitions. He wants to build an upstream  oil giant and at a press conference on Monday he spoke optimistically about how joining forces with BP would boost India's broader economic development.

But it comes at a delicate time for the country. India's reputation as a user-friendly destination for foreign investment is under threat, partly because Cairn Energy's separate $9.6bn deal to sell its share of some Indian oilfields to Vedanta has been stalled by a dispute over royalty payments.

Like the Cairn deal (in which the British prime minister intervened last week), the BP-Reliance tie-up needs the New Delhi government's approval to go ahead.

The FT's Tom Burgis in Mumbai says that while there is no reason to believe that the government won't give it the all clear, it can't be treated as a sealed deal given the current uncertainty of the Indian investment climate.

Still, Ambani had every reason to sound very positive about the deal. For him the success of his vision for Reliance Industries stands or falls on the technology that BP can provide.

The deal would give BP a 30 per cent stake in 23 oil blocks, but just 2 of those have been explored. The rest – including some blocks more than 3km off India's coast – will require BP's technology in deep water exploration expertise.

He told reporters that BP's deep water exploration will "accelerate exploration and development of the Bay of Bengal."

Writing for the FT, Tom Burgis and James Fontanella-Khan say the deal is critical for Ambani:

[Ambani's] energy interests form the backbone of a conglomerate that has made him a fortune estimated by Forbes to be the world's fourth largest at $29bn – the tie-up offers the prospect of faster development of significant but deep and potentially difficult to exploit gas reserves.

But as beyondbrics has reported previously, the Indian government's "game of bluff" over Vedanta's offer seven months ago has given foreign investors the impression that doing business in India can be plagued by paralysis, uncertainty and potential unfairness.

Related reading:
BP in $7.2bn gas deal with India's Reliance, FT
Cairn India: are some shareholders being short changed?, beyondbrics