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Kazakh oil deal unfair, says Aiyar

By rediff Business Bureau
October 17, 2005 10:49 IST
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In August, when China outbid India to acquire PetroKazakhstan Inc, Kazakhstan's third largest oil producer, after its flagship company CNCP raised its offer higher than the Indian price, question were raised about the transparency of the deal.

China National Petroleum Corp, which trailed the Oil and Natural Gas-Mittal Group combine when price bids were made on August 15, raised its bid to $4.18 billion to acquire PetroKazakhstan, a Canadian oil firm operating in Central Asia.

ONGC-Mittal combine was not given a chance to match or rebid, ONGC sources had pointed out.

In an interview to the Financial Times, Union Petroleum Minister Mani Shankar Aiyar vented his anger at Goldman Sachs for changing the rules midway to help the state-controlled Chinese oil group. Aiyar said the auction was marred by a 'lack of propriety and transparency.'

Goldman Sachs, however, said the deal was 'fair and transparent.'

The Indians were clearly ahead of the Chinese in the first round.

ONGC's initial bid of $51 per share, before an August 15 deadline, was more than CNPC's $50 per share.  The merchant bankers acting on behalf of the seller (PetroKazakhstan) had even sought certain clarification on their bid.

But even before the Indians could submit their clarifications, the sale announcement was made. Goldman Sachs said CNPC was granted a period of exclusivity because its deal was 'deliverable.' CNPC then raised its offer to $55.

PetroKazakhstan made the sale announcement at 0730 hours London time, at least a couple of hours ahead of the scheduled filing by ONGC-Mittal combine at the London office of the merchant banker.

The Indian consortium had told the merchant bankers on August 19 that they were willing to better their bid of close to $4 billion if certain information on PetroKazakhstan's operation was provided.

That never happened.

Aiyar told FT that Goldman Sachs had 'moved the goalposts while the bidding process was on.'

PetroKazakhstan accounts for about 12 per cent of oil production in Kazakhstan. It owns 500 million barrels of reserves, 150,000 barrels a day of crude output and a refinery in Kazakhstan.

State-owned KzaMunaiGas is the largest oil producer in Kazakhstan, followed by Chevron.

Even though, Calgary, Canada-based PetroKazakhstan's board recommended that its shareholders accept the Chinese oil company's offer, Kazakhstan is contesting the right of New York-listed PetroKazakhstan to sell 'sub-soil assets.'

The transaction is expected to close this month.

Aiyar said India and China should cooperate rather than compete as they go about 'securing energy supplies for their fast-growing economies', adding that the future does not lie in 'rivalry.'

In November, Aiyar will lead a delegation to Beijing to discuss the lessons from the PetroKazakhstan debacle, and to sign an agreement governing competition for hydrocarbon reserves between Chinese and Indian companies.

Few, however, expect that Chinese companies will actually share their business plans with their Indian rivals.
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