Rosneft-Essar deal at risk due to Saudi Aramco's intervention?

Rosneft-Essar deal at risk due to Saudi Aramco's intervention? Photo: kremlin.ru

A deal between Russian Rosneft and Indian Essar oil was at risk because of Saudi Arabian oil giant's intention to compete for the assets. As a result, the amount of the deal has increased more than twice. Industry sources believe that the deal has been rescued by the two countries' officials.

The deal between Rosneft and Essar oil could fail because of the intervention of Saudi Aramco, claims Reuters citing its unnamed industry sources. The full picture of how the deal has been saved remains unclear. Some sources say that it happened due to the involvement of the countries' leaders, other sources believe that Rosneft just offered a higher price.

Meanwhile, the Kremlin denies any intervention in the deal. 'Naturally, we defend the interests of our companies. Of course, we lobby for them, especially on such large deals,' commented Vladimir Putin's press secretary Dmitry Peskov. However, he added that in the case of Essar 'there were no orders from the Kremlin'. 'It was a corporate decision by Rosneft to gain synergies via cooperation with India,' he said. Essar has the same position and states that the offer of Rosneft consortium was simply the most attractive. Rosneft, Saudi Aramco and the office of prime minister of India Narendra Modi declined to comment.

Essar and Rosneft have been negotiating since 2014. A preliminary agreement was signed in October 2015. There is no official information about the exact amount of the preliminary deal, but some Russian and Indian industry sources say that Rosneft valued Essar at $5,7 billion. But in September 2016, the deal was about to fail because of the bid of the Saudi Arabian state oil company, according to Reuters. Three Saudi-based sources reported that Saudi Aramco was seriously considering buying Essar. One of the sources stated that the company was ready to pay up to $9 billion. Thus, Igor Sechin had to fly to India from Hangzhou, China, where he was at the G20 summit, to meet the Ruia brothers. Rosneft and Essar declined to comment on what happened at the meeting, but in October, the deal was finally signed. It was officially announced the next day during a BRICS summit in Goa, where Putin and Modi met.

Owners of Essar Group Ravi and Shashi Ruia. Photo: outlookindia.com

Rosneft had to organise a consortium to buy 98% of the oil producer for $13 billion. It is the biggest-ever foreign acquisition in India and Russia's largest outbound deal. Rosneft itself bought 49% (below the 50% level to avoid violating Western sanctions). Swiss trading house Trafigura and Russian private investment group UCP purchased the other 49%.

The deal was important for both Russia and India. For the latter, the deal was a part of the plan to reduce India's $140 billion bad debt, including Essar's huge debts to local and foreign banks after the years of rapid expansion. For Russia, the purchase means access to the world's fastest growing market. This is another step to build a global oil empire despite Western sanctions.

The competition for Essar demonstrates the growing rivalry for oil markets between Russia and Saudi Arabia, the world's two largest crude exporters.

By Anna Litvina