An Indian SWF? Really? It’s Finally Happening? You’re Sure? OK Fine I’ll Write About It. Again.

Ashby Monk

It seems the much-discussed and debated Indian sovereign fund for acquiring energy assets abroad may in fact be moving forward. I have to say, this has been a long…long…time coming. I have, quite literally, written ten (10) posts over the past two years on this (still nonexistent) fund. But, with this (11th) post, I think we may actually be getting somewhere. Here’s the news from an Indian official:

“An in-principle approval has been taken to set up a sovereign wealth fund. Its size and contours will be finalised over the next few months…The RBI has finally dropped its long held reservations about setting up an SWF as the country’s forex reserves at a comfortable stage and can easily finance the current account deficit (CAD). Also it was felt that ensuring energy security has to be as much of a priority as having decent forex reserves as oil imports form a huge part of the CAD.”

So, if we can trust this official, a new Indian SWF may soon be a reality. The Reserve Bank of India appears to finally be on board with the plan, which means the biggest hurdle has now been overcome. Here are some more details:

“Keen to reduce the economy’s vulnerability to costly and rising energy imports, the finance ministry and Planning Commission have decided to move fast on setting up a sovereign fund to acquire natural assets like oil, coal and gas abroad. Official sources said that with the insistence of the finance ministry and plan panel, RBI has agreed to set aside $5 billion from the country’s $317-billion forex reserves (as on Aug 12) for the fund…The government is also considering dipping into cash reserves and other assets of some rich state-owned companies to find the balance resources for the fund, which will have a total size of $10 billion, these sources said.”

“The sources said in order to extend the benefit of the proposed fund to private sector energy companies which are on the prowl for big deals overseas to augment their energy asset portfolio, joint ventures with private firms for specific deals could be explored. Another option is to allow the fund to lease out acquired assets to private players. The modalities of these public-private partnerships were, however, yet to be worked out.”

“The proposal to set up such a fund was first mooted by the oil ministry over concerns that India was falling behind China in acquiring energy assets abroad, particularly coal, gas fields and other assets like mining blocks in different parts of the world. China has huge investment in Africa aimed at acquiring energy assets, which has helped it reduce its dependence on imports for the energy sector. The Indian government is keen to catch up as it imports 70% of its domestic demand for oil from abroad and 15% of its coal needs. It is also seen crucial to contain energy cost in view of the steep rise in the prices of oil, gas and coal.”

More to come on this I’m sure.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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