BP-Reliance partnership

• The BP-Reliance Industries (RIL) partnership announced on Monday is significant in many ways. Its very size makes it one of the largest foreign direct investments in the country and by far the largest in the hydrocarbon sector.
• BP will initially invest $7.2 billion for a 30 per cent stake in each of the 23 blocks of oil and gas controlled by RIL. With performance-related payments of up to $1.8 billion and other investments by BP, the deal could be worth as much as $20 billion. 
• BP will contribute to a better exploitation of the 23 blocks, only one of which is now in production. All of them lie offshore, mainly off India's east coast and at depths ranging from 400 metres to more than 3,000 metres. BP's proven expertise in deep water exploration, more than its ability to invest huge sums of money, has been the major attraction for RIL. 
• The BP-RIL partnership also envisages a 50-50 joint venture for the outsourcing and marketing of gas in India. Clearly the focus of the new venture is on supplying the domestic market where natural gas counts for a small but growing share of energy consumption. Reliance, though a strong player in the upstream business, should still benefit from the partnership with BP.
• For BP, the deal with RIL marks a new stage in its recovery from the Gulf of Mexico oil spill which cost it an estimated $20 billion to settle the clean up and related claims besides being an inestimably large public relations disaster. That, along with a belief that the epicentre of the natural gas industry — both production and consumption — is shifting to the emerging markets, has driven the company to conclude mega deals in these countries with significant domestic players. 
• The BP-RIL deal closely follows a $16 billion share swap deal with Rosneft, a Russian government-owned company. The investment by BP is a reaffirmation by global investors of India's potential and capacity to grow at a fast pace. Deals such as this should help reverse the recent declining trend in foreign direct investment. India could do even better by infusing consistency and transparency in the regulatory process governing key sectors. Foreign investors are apt to read wrong signals from the stalling of the London-listed Vedanta's efforts to buy the Indian assets of Cairn Energy. Again, it was the opaque pricing policies relating to natural gas that was one of the key factors behind the well-publicised legal battle between the two Ambani brothers.