On June 26, 2017, India’s Home Ministry and Intelligence Bureau (IB) jointly announced that they “red-flagged” a portion of an all-cash $13 billion acquisition deal by Russian state-owned oil company Rosneft of India’s Essar Oil – the country’s 5th largest oil and gas entity. The government is specifically objecting to the sale of Vadinar Port on India’s western coast. The port is India’s largest entry point for foreign direct investment. This critical national asset also houses the country’s second largest refinery and approximately 3,000 fuel retail outlets (according to the Economic Times).
In 2015, Rosneft initially proposed taking a 49% stake in Essar Oil, but the equity acquisition eventually grew to a full controlling ownership stake of 98% in the company. This highly-politicized deal was eventually closed during the 2016 BRICs Summit meeting in Goa, India, with the presence of President Vladimir Putin and Prime Minister Narendra Modi. Although touted as India’s largest FDI deal to date, the transaction attracted skepticism among six of India’s state banks and financial institutions (IDBI Bank, Punjab National Bank, Syndicate Bank, Indian Overseas Bank, the Insurance Corporation of India, and credit organization, IFCI), which were burdened with Essar Oil’s $500 million debt portfolio.
Beyond the critical infrastructure nature of the asset, the acquisition of the port has also raised defense-related concerns, given that the port is surrounded by four military installations and remains geographically proximal to Pakistan. Indian intelligence has reportedly flagged this as an issue, given Moscow’s recent burgeoning relationship with Pakistan (particularly in the defense sector).
Rosneft’s (and consequently the Kremlin’s) intentions in this acquisition are also suspected of prioritizing strategic gains over commercial ones, as evidenced by Moody’s Investor Service warning that the previously configured $2–3 billion acquisition of the 49% stake in the Indian company would have been credit negative for Rosneft. The current plan to acquire 98% ownership would appear to be even more financially untenable on a commercial basis.