Mukesh Ambani-led Reliance Industries Ltd (RIL) announced on Monday a record deal in foreign direct investment (FDI) coming into India as it forged a partnership with global oil giant BP Plc that would pay $7.2 billion (Rs 32,400 crore) for 30% stakes in 23 of RIL's oil and gas fields.
The plan also involves a joint venture that would eventually take the combined investment value to $20 billion (Rs 90,000 crore) over the next few years.RIL chairman and managing director Ambani described the partnership as the biggest dose of FDI coming into India. The gas blocks under the deal include RIL's crown jewels - the gigantic gas producing KG-D6 fields off the Andhra Pradesh coast.
Ambani announced details of the development in London sitting beside BP's chairman Carl-Henric Svanberg. RIL's stock went up 2.2% on the Bombay Stock Exchange even before details of the deal were out.
"This is not only the single largest FDI in the history India but also the largest investment by BP in a single basin anywhere in the world," Ambani told a news conference.
He said BP and RIL will pool skills to explore for more hydrocarbon fuels off the Indian shores "and significantly contribute to India's energy security."
"For BP, Reliance is a natural partner in India, given its strong position in the Indian market," Svanberg said.
Besides the stake transfer, the two firms announced a 50:50 joint venture for sourcing and marketing of gas. This would involve additional investments in laying pipelines to transport oil and gas from the 23 blocks and setting up gas (LNG) terminals to handle imports.
Besides $7.2 billion in cash, RIL, India's biggest private sector company, will get $1.8 billion more as "performance payments" from BP based on the success of commercial discoveries in the 23 fields, Ambani said.
Ambani told HT by phone that BP and RIL plan to close the deal sometime in 2011-12.
Asked if this deal was also subject to regulatory approvals, as in the case of the $9.6 billion Cairn-Vedanta deal caught in a regulatory maze, Ambani said,
"All blocks (in the deal) are under NELP (new exploration licensing policy) that has a well laid-down framework for government approval. We will apply and get approval."
Petroleum secretary S Sundareshan said, "As the deal involves transfer of participating interest in India's oil and gas blocks to the third party, it has to be cleared by Centre."
Experts said the nature of the approval for the RIL deal would be different from Vedanta Resources' planned acquisition of Cairn India as Reliance-BP deal does not involve transfer of management control.
"The deal is a strategic one and is a good marriage as Reliance has the resources and BP has an expertise in deep-water exploration," said Aseem Dhru, CEO of HDFC Securities.
"Also, the gas pipeline infrastructure (for which the two companies have formed a 50-50 JV) will be a game changer in India as a lot of gas-based power projects will come up."