India loses to china in oil - Kazakhstan government will not support a rebid by India's Oil and Natural Gas Corp (ONGC) for acquiring PetroKazakhstan
Kiran Chaube
Aug. 28, 2005

It was grim news for India’s energy sector and a wake up call for Indian authorities in dealing and competing with China. According to India China used unfair bidding practices to acquire the oil resource.

The Kazakhstan government will not support a rebid by India's Oil and Natural Gas Corp (ONGC) for acquiring PetroKazakhstan, whose board of directors has already accepted a 4.18bn USD [US dollars] offer made by China's CNPCI [China National Petroleum Corporation International]. "Kazakhstan Minister of Energy and Natural Resources Vladimir Shkolnik has told us that Kazakhstan government will not stop CNPC International (an affiiate of state-run China National Petroleum Corp) from taking over PetroKazakhstan for the benefit of ONGC," a senior Kazakh official told media sources.

Though Kazakhstan does not have a pre-emption right, its approval is required for completing the deal. "For us both Chinese and Indian companies are equal ... [ellipsis as carried] we cannot discriminate against one or favour another. Its a fact that the Chinese firm bid higher than ONGC in a tender process that took place in London. The Kazakh government feels the process was fair and does not see why it should be stopped in favour of one party," the official said.

ONGC's international arm ONGC Videsh Ltd tied up with an investment vehicle controlled by steel magnate Lakshmi Mittal to make a bid of 3.98bn USD for Kazakhstan's third largest oil producer. It claims that its bid was higher than CNPCI's initial bid and the Chinese firm was "unfairly" allowed to revise its bid. ONGC was not given a similar opportunity.

The Kazakh official said if the Kazakhstan government was to stop the sale of PetroKazakhstan it would be in favour of local companies. "Two years ago, we brought a law to stop British Gas [BG] from selling its stake in Kashagan oilfield to outsiders. The legislation ensured that the BG stake remained within. If we were to do something, we would do like to do a similar thing." The Kazakh official said ONGC should accept that it has lost PetroKazakhstan and should look at other opportunities available in Kazakhstan.

Meanwhile, ONGC is waiting for PetroKazakhstan to make a filing on the CNPCI's takeover offer in the Canadian court to decide if it should make a counter-bid. "PetroKazakhstan has made a filing in the stock exchange and will now do so in a local court. The filing would spell out details of the deal, based on which ONGC would decide if it was prudent for it to make a re-bid," said an industry source.

The Canadian firm would have to pay CNPCI 125m dollars in penalty if it were to cancel the present takeover offer. ONGC would have to factor in this amount before making a revised bid. Besides, CNPCI has an option to match any revised offer from ONGC.

CNPCI's offer values PetroKazakhstan at 10.59 dollars per barrel of proven oil and gas reserves, a record for the Caspian region. Taking into consideration the estimated 462m dollars that the company may potentially have to pay to settle legal claims against it (PetroKazakhstan), the deal values the company at 11.77 dollars per barrel of proven oil reserves. Any offer above 50 dollars per share would be justified commercially if international oil prices remain above 40 dollars per barrel in the long run, the source said.

CNPCI has offered 55 dollars per share to takeover PetroKazakhstan. The source said ONGC can make a revised bid before PetroKazakhstan puts the CNPCI offer to vote at an emergency general meeting of shareholders in the beginning of October.

MORE ARTICLES >>