Millennium Post

FinMin against forming SWF to buy oil & gas assets abroad

Finance Ministry has opposed creation of a $10 billion Sovereign Wealth Fund (SWF) to acquire oil and gas and fertiliser assets abroad, saying the country did not have sufficient foreign currency to support the fund.

At a recent meeting called by PM's principal secretary Pulok Chatterjee, departments of economic affairs and expenditure were of the opinion that cash-rich PSUs should use their reserves and decide independently on overseas acquisition on commercial terms, official sources said.

Planning Commission had mooted setting aside of $10 billion from the nation's foreign-exchange reserves and creating a sovereign wealth fund to secure energy assets overseas.

Sources said at the meeting the Department of Economic Affairs expressed view that SWF was possible and desirable only when the current account was surplus.

It was of the opinion that in the prevailing situation of deficit in revenue account and apprehension of devaluation of rupee vis-a-vis dollar resulting in worsening fiscal deficit, it was more advisable if cash-rich PSUs take their independent decisions to make investment in acquiring assets abroad.

Sources said the Expenditure Department also felt that current reserve position of the government does not allow to have a SWF. India, which had $295 billion in foreign-currency reserves, has been outpaced by China in the quest to acquire oil blocks and coal fields to meet growing energy demand in the world's fastest-growing major economies. China has $3.3 trillion in foreign currency reserves.

The External Affairs Ministry also affirmed that 'a group of PSUs need to be identified which can join hands and make investments abroad based on commercial decisions'.

The Prime Minister's Office, they said, has now asked the economic affairs department to conduct a study on utilising the surplus funds of the state-owned firms and to suggest an institutional mechanism for investments abroad.

Ministries of petroleum and fertiliser were asked to identify projects and assets while defining the need for investment in them based on expected returns.

Around 30 countries, including China, Singapore, the UAE, Malaysia and Qatar, operate SWFs. A number of current account surplus countries have set up SWFs from their foreign exchange reserves to acquire assets overseas.


India has slashed import of crude oil from Iran by over 26.5 per cent in the financial year ended 31 March as US and European sanctions made it difficult to ship oil from the Persian Gulf nation.

The nation imported about 13.3 million tonnes (mt) of crude oil from Iran in 2012-13 fiscal, down from 18.1 mt shipped in the previous financial year, official sources said.

The decline in shipments to the world's fourth-largest oil importer was sharper than by Iran's other two big buyers, China and South Korea, as New Delhi struggled with insurance and payment problems.US and EU have shut down the use of their financial systems for Iranian crude trade, and Washington recently imposed more treasury sanctions on trade with Iran - making imports from the Islamic nation even more difficult - in the hope of starving Tehran of cash that would force it to give up its nuclear programme.

While India can't deposit dollars or euros in any foreign bank for importing crude from Iran because of the sanctions, insurance companies are refusing to cover refineries that use oil from the Persian Gulf nation.

Sources said in 2012-13, Iran has slipped three places to become India's sixth-largest crude oil supplier.Iran, which was India's second biggest supplier of crude oil after Saudi Arabia in 2010-11, supplied 133 million tonnes during 2012-13.

Iran supplies were behind Saudi Arabia, Iraq, Venezuela, Kuwait and UAE.India had in 2011-12 relegated Iran to the third spot with 18.1 mt  of imports. These were behind 32.5 mt from Saudi Arabia and 24.1 mt from Iraq. Iran had in 2009-10 supplied 21.2 mt, which came down to 18.5 mt in 2010-11 and to 18.1 mt in the year after.During 2012-13, Iranian supplies made up for 7.2 per cent of the India's oil imports, down from 10.5 per cent in the previous fiscal (2011-12).

India bought a total of 182.5 million tonnes crude in 2012-13. In the previous fiscal, it imported 171.7 mt of crude oil, up from 163.4 mt in 2010-11 and 159.2 mt of 2009-10.
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