Oil Wars: How Kremlin’s $13 Billion Indian Deal Almost Fell Apart

Saudi’s Aramco is competing with Russia to buy Indian refiner Essar.

• Saudi Aramco was competing with Rosneft for Essar: Sources
  
• Rosneft-led group paid $13 billion in deal for Indian refiner
  
• Global rivalry between Russia and Saudi Arabia intensifies
  
• India is the world’s fastest-growing fuel market
  

A multi-billion-dollar Russian deal to buy Indian refiner Essar was nearly sunk at the eleventh hour by a rival bid from Saudi Arabia as the two oil superpowers vie for supremacy across the world.

The deal between Essar and a consortium led by Kremlin oil giant Rosneft appeared dead in the water two months ago after Saudi state energy firm Aramco weighed in, according to seven Russia, India and Saudi-based industry sources familiar with or involved in the negotiations.

It was salvaged due to the involvement of Russian President Vladimir Putin and Indian Prime Minister Narendra Modi, who were keen for it go through, and after the consortium agreed to pay $13 billion – more than double what Rosneft had initially valued Essar at, sources told Reuters.

This made the refiner the biggest-ever foreign acquisition in India and Russia's largest outbound deal.

The tussle for Essar – a state-of-the-art plant in the world's fastest-growing fuel market – illustrates the growing battle for oil markets between Russia and Saudi Arabia, the world's two largest crude exporters.

It also sheds light on the challenges OPEC member Saudi Arabia and non-OPEC Russia – which are also fighting a proxy conflict in Syria's civil war - will face in trying to clinch a global agreement to limit output growth to prop up oil prices.

The full details of how the Essar deal was struck remain unclear. Two industry sources said it was rescued thanks to the involvement of Putin and Modi while three other sources said Rosneft had simply outbid Saudi Aramco.

Officials in Modi's office declined to comment while Putin's spokesman Dmitry Peskov denied there was any Kremlin intervention in the deal.

"Naturally, we defend the interests of our companies. Of course we lobby for them, especially on such large deals," said Peskov, but 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.

Rosneft and Saudi Aramco declined to comment.

Essar said it had held discussions with several potential buyers but had gone with the Rosneft consortium because their offer was considered the most attractive. It denied there was any intervention from Putin or Modi.

Showdown

Rosneft boss Igor Sechin is keen to buy refining assets around the world to guarantee outlets for Russian oil. He had been negotiating since 2014 to buy 49 percent of Essar from its owners, Indian brothers Ravi and Shashi Ruia, and the two parties had been in exclusive talks since July 2015 when a preliminary deal was signed.

While the exact amount Rosneft was prepared to offer for the stake at that stage is unclear, Russian and Indian industry sources said it valued the whole of Essar at about $5.7 billion.

However, it became apparent that there were problems with the deal in early September, when Sechin travelled to India to meet the Ruia brothers, flying from Hangzhou, China, where he had been part of Putin's G20 summit delegation.

Sechin walked into the meeting with the Ruia brothers soon after landing in India at 1 am, determined to close the deal, according to sources briefed on the discussions.

As the meeting started, one of the brothers told Sechin the deal process had been going on for too long, the exclusivity period had expired in July and Essar was now talking to other parties.

Those other parties included Saudi Aramco, he said.

According to the sources familiar with how the meeting unfolded, Sechin responded by saying that if Essar walked away from the deal it risked losing Russian financial and oil-supply support.

The Ruia brothers then said the talks with Rosneft were over and called an abrupt end to the meeting.

"People started leaving the room, embarrassed," one of the sources said. Another source said the Essar management had drafted a statement to say the deal with Rosneft was off.

Rosneft and Essar declined to comment on what transpired at the meeting, or on whether such a statement had existed. Sechin and the Ruia brothers could not be reached for comment.

Three Saudi-based sources familiar with details of talks between Essar and Saudi Aramco said the firm was seriously considering buying Essar. One of the sources said Aramco was prepared to pay up to $9 billion for all or most of the refiner.

Aramco declined to comment on whether it had made a bid.