India's new leader wants foreign investment in the country's oil and gas sector, but state-owned companies may not be privatized anytime soon.
Prime Minister Manmohan Singh, a respected economist and former finance minister, told reporters last month that economic reform is still on track, albeit at a kinder, gentler pace than what policymakers previously envisioned.
"Reforms are needed, I've always said that, but economic reforms with a human face that give India's common man a real hope," said Singh.
Skepticism rampant
Some analysts think putting "a human face" on reform means India won't offer substantive returns to foreign oil companies for years.
"I remain pretty skeptical on investment in India," said Rick Mueller, analyst with Boston-based Energy Security Analysis Inc.
Mueller said that the recently ousted promarket Bharatiya Janata Party never fully abolished government-controlled energy prices. Moreover, demand growth remains relatively slow, especially when compared with China.
"The government wants to reassure markets by proclaiming a foreign investment-friendly environment, but outside of more computer engineering and call centers it's hard to see that coming to pass," he said.
Other analysts said that, given all the political turmoil the government has gone through, the future investment outlook is not all that bleak.
"The new government's signals on policy orientation have been mixed thus far but are less alarming than initially feared," said Standard & Poor's credit analyst Ping Chew.
Much at stake
There's a lot at stake for India, a nation that relies heavily on foreign money to keep its economy moving. In 2003 foreign fund managers invested a record $7.7 billion in Indian debt and equities.
On May 23, Mani Shankar Aiyar was named as the country's new prime minister. Aiyar was a close advisor to the late Rajiv Gandhi, and he served for many years in the Indian Foreign Service. The career diplomat-turned-politician also understands the oil business: During 1976-78, he was the commercial counselor and deputy chief of mission at the Indian embassy in Baghdad.
Aiyar has not detailed when or if the government will allow fuel suppliers to raise retail fuel prices. But he has suggested that if wholesale prices are allowed to increase, the government may cut back its own excise taxes to keep fuel subsidized. The prior government froze fuel prices even as oil costs climbed 40% in the last 6 months.
Looking upstream, investors may see more immediate prospects. State-owned Oil & Natural Gas Corp. signed a preliminary agreement May 24 with Schlumberger Ltd. that government officials hope will mean more production flows from declining fields.
ONGC also wants to partner with foreign companies for an ambitious $7 billion plan to diversify the company into LNG, petrochemical, and power projects over the next 4 years. As it builds up its own business, India recently made plans to buy 5 million tonnes/year of LNG from Iran starting in 2010.
