There are only two things that come mind when a top Indian firms chooses to invest overseas. It is either a step towards strengthening the Indian MNC, or a highlight of the myriad issues that make Indian a hostile investment environment.
Reliance’s move to Mexico may very well lead to more business for the firm’s Indian refinery. With most of its turnover dependent on exports, there is no denying the fact that investing in the petrochem business as well as refinery would be a necessitated move.
However, this could put a damper on the exploration plans back home in India. Reliance is India’s most prolific investor. If the firm were to move its exploration plans to other countries like Mexico, it would be a huge setback for the nation.
According to reports, over 2300 exploration opportunities with the potential to provide more than 29 billion barrels of oil have been identified in Mexico’s deep water reserves. Reliance’s own investment of $11 billion in India’s KG Basin is sailing on troubled waters, thanks to the never ending arbitration that makes cost recovery difficult. Hence, it doesn’t come as a surprise that the firm wants to move to other areas that promise quicker returns.
Reliance’s shale operations in the US have also yielded higher turnovers than Indian operations over the past few years. While the Indian turnover was higher than the US in Q4 FY13 (Rs. 1597 crore versus Rs. 1063 crore), Q4 FY14 saw the US overtake India in its revenues (Rs. 1417 crore in India versus Rs. 1646 crore in the US). The US operations pertaining to ebita have also been more profitable for many quarters.
Many believe that the Indian government’s Phase 2 plan proposal to hike gas prices would change all this. However, the recent gas pricing guidelines that were issued by the government do not reflect any of these proposed plans. The plans only speak of providing a premium for deep as well as ultra-deep wells, aimed only at discoveries made after the guidelines have been formally issued.
This would mean that all the deep and ultra-deep well discoveries that have already been made would not be eligible for this higher premium. In this context, Reliance’s move to Mexico can be considered as the best and most plausible move for the company it aims to gain quick returns without any hassles.
Summary
Reliance Industries has planned to move its oil exploration plans to Mexico. Considering the government’s proposal to not provide higher premiums for already discovered oil wells in India, this move by Reliance is not surprising, although it would be a huge setback for the nation.
