Search the Internet          Tips  Sites: Finance, Investment

Putin slashes arms prices to offset India's risks in oil deal

Russian President Vladimir Putin, who took the "political decision" to award 20 per cent equity in the Sakhalin-1 offshore oil block to ONGC-Videsh Ltd under the production sharing arrangement (PSA), has slashed India's arms bills to offset New Delhi's possible risks in the project.

Putin has slashed the prices of "T-90S" and "Sukhoi" deals with India by $320 million and $700 million respectively, the Russian daily published jointly by the Wall Street Journal and Financial Times reported quoting sources in the government and 'Rosneft' company.

Under the deal, which is in its final stages, ONGC-Videsh Ltd is to acquire half of the 40 per cent equity of the Russian oil giant 'Rosneft' in the project in exchange for footing the Russian company's past and future bills to the tune of $1 billion, Moscow Business daily Vedomosti reported.

Since the exploration of Sakhalin-1, oil block has so far failed to give a clear picture of its economic viability.

Currently, the US oil Giant Exxon-Mobil and Japanese "Sodeco" are Rosneft's partners in the Sakhalin-1 project, which is expected to start production in year 2005 and would require a total investment of $4 billion.

According to an analyst quoted by the daily, the Sakhalin oil deal is a purely political one between Russia and India and is highly lucrative for the cash-strapped Government-owned Rosneft.

Rosneft was looking for a buyer since 1998, who could pay a decent price for its stake in the project.

The proposed deal was dubbed as a "breakthrough" in bilateral relations by Finance Minister Yashwant Sinha in an interview to ITAR-TASS.

Under the proposed deal, ONGC-Videsh Ltd will pay $100-$150 million to cover Rosneft's initial expenses along with a $200 million premium and cover its expenses to the tune of $800 million till year 2005 in exchange for 20 per cent equity in the project.

ONGC-Videsh Ltd's Managing Director Atul Chandra said that Sakhalin-1 alone could annually give India the double of oil and gas produced in Assam and south India taken together.

Tell us what you think of this report