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Go forth and multiply

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Another pillar of India's strategy to guarantee the supply of its fast-growing demand has been the acquisition of assets oversees. According to government figures, Indian oil and gas companies are already present in more than 21 countries and produce more than 8 million tons of oil and gas per annum outside of the country. Unquestionably, the company leading this charge to international markets for India is ONGC, who as a PSU is charged with the task of guaranteeing India's energy security for the years to come. Current chairman & managing director of ONGC AK Hazarika, also director (onshore), and charged with the task of leading the company while a permanent chairman is selected, explains the company's strategy in international markets: "Our focus is also on sourcing equity oil from outside India to meet the country's rising energy demands. That is why we created our subsidiary company, ONGC Videsh Ltd (OVL), whose sole purpose is to look for oil internationally. In this regard, another strategy, set by the company in 2002 is to source 20 million tons of oil equivalent per year into the country by 2020, through OVL.

K. Venkataramanan, president (operations), Larsen & Toubro

"Today, OVL is a good growth vehicle for the company, and now has 34 properties in 15 countries. OVL has 9 producing assets where it has equity oil, and year on year the company is producing an increasing amount of equity oil. This year it has reached 9.4 million tons of oil equivalent, whereas last year, in 2009, it was 8.87 million tons." Through its flagship projects in Sudan, Venezuela, Brazil and Russia, ONGC hopes to secure energy for India, and also bring the Indian flag to large international projects, and promote the strengths of the Indian oil and gas industry abroad.

Oil India Ltd. (OIL) is another PSU now looking to internationalize its exploration and production activities. Chairman and managing director NM Borah had some interesting comments to make about the challenge of taking those first steps abroad: "one must be cautious and strategic when internationalizing. Three years back OIL had opportunities coming from everywhere, from Latin America to Africa. But we didn't have a structured way of thinking questions such as ‘given the choice, what part of the world would OIL like to go and why? Is it onshore or offshore? Gas, oil or both? If it's oil, what size?' The company didn't have good answers for these questions, so we realized that this was something we needed to figure out before further expanding abroad. This brainstorming might take some time, but it will put OIL on a better position to capitalize on good international opportunities that come along the way."

However, the acquisition of overseas oil and gas assets by Indian companies, though in fast expansion, is still shy when compared to its Chinese and Western counterparts. Outgoing secretary Sundareshan explains that "the Indian model of internationalization has been very different from others. If you look at Western countries, private companies carry all their investments. If you look at other players such as China, all their investments come from governmental funds, with the state's backing. In India, our state-owned companies have been internationalizing on their own, using self-generated resources. There is no national government contribution to this. But even without our explicit guidance, they have done a very good job guaranteeing India's future energy security. We hope that the private sector will add increasingly to this process, and help India's fast-growing economy to secure the future energy need."

The successful internationalization of Indian state-owned companies has followed the liberalization and modernization of the sector. But one issue still remains in the domestic market, and is arguably the main reason private companies are barely present in India's downstream sector: price controls for final consumers. The lack of profitability directly affects the international competitiveness of India's downstream companies and their capacity to acquire assets abroad and raise capital in financial markets.

Despite the challenges faced by oil and gas companies in the Indian market, one sector that has seen much growth and success over the years has been the service industry, and today, after many triumphs in the home market, these companies are now ready to expand internationally. "Once people see our credentials," says K Venkataramanan, president of operations at Larsen & Toubro, "the first question they ask is why are we not already present internationally? We tell them that we have been building our track record in India and now we believe that we have a sufficient number of references to internationalize. We have achieved that critical mass." This is something of an understatement from Larsen & Toubro, India's largest engineering and construction company, which on its 70th anniversary was hailed by India's political and industrial elite as ‘the company that built India'. Now, after conquering many diverse Indian sectors, from oil and gas to defense, the company is looking beyond its borders. As Venkataramanan says, "we have reached the point now where we would definitely like to become an international player, initially in the Gulf area, parts of Africa and South East Asian markets."

Currently, international projects account for 10% of Larsen & Toubro's business, but over the next five years, Venkataramanan hopes to increase this to at least 30%. With this in mind, the company is restructuring its international affiliates. In the Gulf, Larsen & Toubro has split its business into two clusters, one to service Oman and Qatar, and the other to cover Saudi Arabia, Bahrain and Kuwait. By recruiting local managers to lead the businesses, Venkataramanan hopes that their experience will help to drive the businesses. As well as this, the company has invested in a manufacturing complex at Sohar, Oman, where recently the largest structures ever made in the Gulf were completed and delivered: two 15,000 ton jackets for ONGC's Bombay High field. Additionally, the company has representatives in London, Houston, Singapore, Kuala Lumpur and Perth in order to drive more international business. Venkataramanan is optimistic about Larsen & Toubro's future in new countries, but is well aware of the challenges that lay ahead. "Larsen & Toubro is well regarded in the equipment space because that is where we are best known around the world. As a fully integrated EPC player, we are enlarging our circle of recognition. Companies might consider us for a $1 billion USD project, but we need to get into the consideration set right up to $2.5 billion USD, and for a wider range of services."

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