by R. Sasankan

Saudi Arabia appears to have kicked off a big petro-dollar investment craze for large refinery and petrochemical projects in India. When petroleum minister Dharmendra Pradhan had first started to drum up investor interest in a big-ticket mega refinery project on India’s west coast, many had dismissed it as just another pie-in-the-sky dream. No one had really believed that he would be able to persuade Saudi Arabia to pick up a 50 per cent stake in the proposed 60 million tons per annum project. But when the Saudis interest was piqued and they decided to stump up the money, it surprised everyone in government and caused a stir in the refinery and petrochemical industry.

Saudi Arabia is going through a phase of radical reform – a time when it has started to quickly jettison stuffy, dyed-in-the-wool notions about governance, investment and socio-cultural practices and embrace out-of-the box ideas to shake up traditionalist thinking in the rich, oil kingdom. Saudi Arabia has become a hothouse of surprises in recent months. But an investment on such a massive scale had never been expected in a country that has never been on its investment radar. Clearly, there must have been long and deliberate deliberations on this proposal before they decided to commit the funds.

India has been buying crude from the Middle East countries for many years as the region had been geographically close to it. The leadership in India – dating back to the regime of Indira Gandhi – had tried but failed to attract big petro-dollar investments. The Middle Eastern oil-rich countries have always looked to the West for investment opportunities, a fervour that remains undiminished. But India has managed to chip away at the reservations that these countries had about investing in India, largely because of the fact that it has since emerged as one of the world’s fastest-growing economies and is currently the third largest importer of crude.

All this has been written about fairly extensively. But an innocuous question that was raised by an oil industry executive at an informal get-together in Delhi recently piqued my interest and forms the basis for this article. There have been a number of reports in the media suggesting that the UAE may also be eager to pump money into the west coast mega refinery project. The UAE has already signed a deal with India to fill up a part of the large crude storage tank at Mangalore in the state of Karnataka and has also roped in an Indian PSU as its equity partner in a major oilfield that it plans to develop. The question was about Kuwait. Would it also be keen to join the mega refinery since it also has been scouting for investment opportunities in India’s refinery sector?

I decided to bounce this question off to a few oil industry experts who know the Middle East well. My understanding about these three countries was superficially right: all the three Middle Eastern nations are very friendly with the US and opposed to Iran. In the Middle East, the perception is that it is Saudi Arabia that is fighting Iran, a Shia country, and, therefore, Kuwait should not have any problem in joining the mega refinery project as an investor. But that assessment is based on an insufficient understanding of the reality in the Middle East. Soon after Saudi Arabia decided to invest in the mega refinery, Kuwait started scouting for refinery projects in India where they could invest. It was not looking for new refinery projects but actually scoping out opportunities in existing PSU refineries. It had almost zeroed in on the Bina refinery project which is a joint venture between the stated-owned BPCL and Oman Oil Company.

The reason is simple: Kuwait is different, and the Kuwaitis consider themselves to be superior to the Saudis. Such cultural differences exist in many parts of the world: the Swedes consider themselves to be superior to the Finns, and the French have a similar perception about the English. But the differences between the Saudis and the Kuwaitis run a lot deeper. These experts believe that Kuwait isn’t close to Saudi Arabia at all. They have never opted to collaborate while investing large sums of money in any project across the world. “If Kuwaiti investment is of the same order as the Saudis, then Kuwait will want control. And that will simply not be acceptable optically to the Saudis. The Saudis see themselves as the undisputed leaders of the Gulf nations which will not be acceptable to the Kuwaitis,” said an acknowledged expert on the Middle East.

This ought not to be a matter of great concern for Indian authorities. In fact, such differences actually work in India’s favour. Saudi Arabia has very ambitious investment plans for India and the refinery project is just one of them. Kuwait will not allow itself to be left far behind the Saudis. However, it will not try to get into a game of one-upmanship with the Saudis.

Kuwait may decide to invest in the petrochemical sector as well. If the investment plan for the Bina refinery does not work out, Kuwait may turn to IOC’s Paradip refinery. In fact, Kuwait entered the Indian market 15 years ago and almost decided to invest in IOC’s Paradip refinery project. It had even signed an MoU with IOC. It later withdrew from the project following differences with the IOC management over the terms of investment.

India has now become a major investment destination for petroleum projects. Its growing economic clout has also strengthened its bargaining position vis-à-vis investors. The Indian government is also playing its cards well: it would like to attract investment from the Middle East but it has no intention of dabbling in the internal politics of the region. That is the best way to attract investments and avoid controversy.