Putin to Deepen Indian Energy Ties as Modi Seeks China Treatment

Russian President Vladimir Putin will seek to bolster energy ties with India on a visit next month, his latest move to expand trade links with Asian nations to counter sanctions from the U.S. and its allies.

Oil & Natural Gas Corp. (ONGC), India's biggest energy explorer, is likely to sign initial agreements during the trip with Moscow-based OAO Rosneft (ROSN) to study two Russian oil and gas fields, Chairman Dinesh Kumar Sarraf said by phone yesterday. Putin is set to arrive in New Delhi on Dec. 11 for meetings with Prime Minister Narendra Modi.

"Russia may be looking for new investments in their energy sector, especially now, and we're keen to invest," Sarraf said, declining to disclose details on the location of the fields. "We've always maintained that we respect UN sanctions and not really those imposed by individual countries. If we see good opportunities in Russia, we'll go."

Closer ties stand to benefit both leaders as they seek to boost economic growth and fend off geostrategic threats. While Putin pushes to build relations with Asia to avert a recession, Modi is looking to fulfill a campaign promise of economic development and prevent Russia from leaning too much on China.

"Modi really needs to keep engaged with Russia because an isolated Russia can move closer to China," said W.P.S. Sidhu, a senior foreign policy fellow at the Brookings Institution in India. "That creates challenges for India."

China Pipeline

Russia holds the world's second-biggest natural gas reserves and is among the globe's biggest oil producers. The country's deteriorating relations with the U.S. and Europe amid the Ukraine conflict is forcing it to turn to China, the world's largest energy consumer.

"India is looking very closely at that -- it'll want to get in on the action," said Sinderpal Singh, a senior research fellow at the Singapore-based Institute of South Asian Studies. "The Russians want to diversify, India wants hydrocarbons. Trade imperatives bind all these countries."Gas exporter OAO Gazprom (OGZD) reached a $400 billion deal with China in May to build a pipeline and start supplies after more than a decade of talks. In September, Putin offered to sell a stake in Vankor, the country's second-biggest oil project, to "Chinese friends." OAO Russian Railways is seeking to build a $60 billion high-speed line to help link Moscow to Beijing.

Oil Dependency

India, which spent $143 billion to import crude last year, may look to diversify suppliers by buying more oil from Russia and Latin America to guard against geopolitical risks, Oil Minister Dharmendra Pradhan said in an October interview.

India is examining the feasibility of building a $40 billion pipeline to bring gas from Russia to India either through Central Asia or from Russia's southern border through the Himalayas, the Hindustan Times reported in August, citing government officials it didn't identify.

Economic ties between India and Russia are largely limited to arms transfers, and those have decreased over the past few decades. While the Soviet Union was India's largest trading partner in 1981, Russia wasn't among its top 15 commercial partners last year, according to data compiled by Bloomberg.

Russia and the Soviet Union have been India's biggest weapons suppliers, accounting for about 70 percent of its arms imports since 1950, according to data compiled by the Stockholm International Peace Research Institute. The U.S. surpassed Russia as India's top supplier of defense equipment in the three years to March, according to Indian government data.

ONGC Investment

Whether that means the two leaders will be successful in broadening engagement beyond defense and energy, though, is less clear, according to Brookings' Sidhu. Private companies may not be as willing to follow the lead of state-controlled ONGC and Rosneft, which is headed by long-time Putin ally Igor Sechin.

"I'm not sure India business is going to be enthused," Sidhu said. "Indian companies tend to see their interests more with Western companies."

ONGC has been one of the few Indian companies to invest in Russia. ONGC Videsh, its overseas arm, currently owns a stake in Rosneft's Sakhalin 1 project in Russia, while its unit Imperial Energy Corp. operates oil fields in the nation's Tomsk region.

Less than 1 percent of overseas investments made by Indian companies since 2008 have gone to Russia, according to data from the Reserve Bank of India. ONGC accounts for about 85 percent. Rosneft Press Service didn't respond to an e-mail requesting comment on the agreements to study oil and gas fields.

Nuclear Power

Putin and Modi are likely to discuss nuclear energy and space cooperation, and attend a diamond and gems conference together in New Delhi. Modi has also invited Putin to visit the Kudankulam nuclear power project in southern Tamil Nadu state, according to the Press Trust of India.

While India plans to build 19 new nuclear plants by 2017, laws that make equipment suppliers liable in case of an accident have stalled deals, including an accord for buying two more Russian reactors for Kudankulam.

"India and Russia have had very good relationships, in terms of politics, history, but investments by Indian companies in Russia have been much lower than what it could've been," ONGC's Sarraf said. "Our businessmen haven't given it much attention, and there's no reason why that should happen."

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Natalie Obiko Pearson in New Delhi at npearson7@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Dick Schumacher