India-China Trade: Energy & Petro-Products a Viable Niche

By Didhiti Ghosh, Bureau Chief (Kolkata), Indian Observer Post

Kolkata, May 11, 2019: India and China are working closely on bilateral trade concerns, including cooperation in buying oil and gas, against the backdrop of a US squeeze through tariffs and sanctions on Iranian oil imports, officials with direct knowledge of the matter said.

China has recently made huge strides in gathering momentum to move out from traditional fuels toward developing cleaner energy solutions, the transformation requiring a huge amount of technical, financial and socio-economic feasibility measures. In India, where only 75% of the population is currently electrified, new innovative solutions are needed to connect areas to power supply and enable the creation of alternative sources of livelihood.

The viable niche that India and China can harbour in the sectors of Energy and Petro-products has been a topic of great interest in recent times, and as well demonstrated in the 2-day conference organized by Friedrich Ebert Stiftung and ICRIER in New Delhi last month. The same counted with the presence of experts in the domain from India and China, who spoke on topics for encountering sustainable solutions for energy access, sustainable mobility and the ascent of electric vehicles, technological innovation, jobs and livelihoods under a new energy paradigm and greening economies together including bilateral collaboration.

Narendra Taneja, leading energy expert and National Spokesperson of the BJP in his keynote address strongly stressed the points of bilateral energy cooperation and its impact for the developing world.

“India & China need to cooperate on electric mobility so that rural areas will get better opportunity to participate in economic activities which will also improve their livelihood,” says Sehaj Malik, Adviser of Socio-Economic Transformation, Friedrich Ebert Stiftung (FES) India.

“Both the countries have a shared objective of helping the world meet global goals on climate action, which relates to the energy efficiency, thereby enabling cooperation on manufacturing of solar panels, innovation & storage for renewable energy,” says Rajat Kathuria, Director of ICRIER.

The economic interests of India and China have also been threatened by the Trump administration's announcement on ending preferential arrangements with India under the Generalized System of Preferences (GSP) programme and raising import duties from 10% to 25% on Chinese goods worth $200 billion. New Delhi and Beijing are coming closer to counter trade barriers created by the US that threaten the two major Asian economies, the officials said.

Anurag Mishra, Associate Fellow of CUTS International, however adds a more positive note to the topic of India-China bilateral ties with special mention to the Oil and Energy Sectors. “Both the countries are going to consume about 1/3^rd of overall world primary energy demand by 2040. This provides an opportunity for collaboration in various sectors such as oil and gas, renewables and bio fuels, given that both the countries are chasing a common goal of energy empowerment for its citizens.”

This will further promise the much-desired shifting of the pole of energy governance from West to East and thereby benefit developing countries like India, says Mishra.

PM Modi first spoke of his dream of having a “New India” in March 2017, the idea of which welcomed a country free of poverty, dirt, corruption, terrorism, casteism, communalism, and the dream veritably to be achieved by 2022, the year of its 75^th Independence Anniversary. Union Minister Suresh Prabhu forged the idea by further stating that India, boosted by the USD 16-billion Walmart-Flipkart deals last August, which is the biggest-ever foreign fund inflow into the country, the year 2018, saw for the first time in two decades India overtaking China with USD 38 billion in inbound FDI deals compared to China's USD 32 billion. 

“India is the fastest growing economy in the world today, and by the year 2030 it will become the third largest. The country is likely to increase from the present level of USD 2.9 trillion to USD 5 trillion in 2025 and further to USD 10 trillion by 2032. The Country’s GDP on Purchasing Power Parity (PPP) equals USD 11.41 trillion and it is already the 3^rd largest after China and the United States, which come in the first and second positions, respectively,” said Prabhu, while highlighting the fact that the GDP growth rate of India in 2018 was 7.1%, compared to China’s 6.6% the same year. “India must take hints from China’s policy of global involvement in the supply chain model, as China has proven to have one of the highest savings in the world.”

Further predictions say that by FY 2020, the growth rate of China will decline to 6.1% and that of India will climb to 7.5%. The global growth rate during the corresponding period of 2019 & 2020 will be 3.3% and 3.6% respectively and the same for the US will be 1.8% and 1.7% respectively.

Efforts have been made by the world's second- and third-largest oil importers to find common ground and energy cooperation is one of the key areas where the two sides can collectively bargain for better prices from producers, the officials added, asking not to be identified.

Following a visit to New Delhi in March by Li Fanrong, Deputy Chief of China's National Energy Administration, the two sides created a joint working group on oil and gas. This is the first institutionalised arrangement between the two sides to cooperate in energy though they have several groups on issues such as counter-terrorism and the boundary dispute.

"A meeting between petroleum and natural gas secretary MM Kutty and the vice minister of China's National Energy Administration, Li Fanrong, was held on March 26 in New Delhi to discuss cooperation in the oil and gas sector," one of the government officials cited above said.

A person familiar with thinking in official quarters in Beijing said "both sides are closely discussing" cooperation in key areas such as oil purchases. He confirmed these issues had figured in the meeting between Kutty and Li in March.

Other major deals in the recent past between the two countries included Unilever buying out GSK’s consumer business in the country for over INR 31,700 crores, Schneider Electric, TPG Capital, KKR, Softbank, and Alibaba among others. 

Cooperation in energy has been on the agenda for some time - Kutty visited China last October - but the issue gained steam with the US announcing the end of exemptions to sanctions on Iranian oil imports last month.

Iran is important for the energy security of India and China as it is one of the largest suppliers of crude to the two major economies and the supply disruption due to US sanctions has huge strategic and economic costs for the two countries, Indian officials said on condition of anonymity.

Among issues that India and China can jointly work on is the "Asian premium" charged by the Organization of Petroleum Exporting Countries (OPEC), the officials said. India is also concerned about the impact of US sanctions that kicked in on May 2 and cut off supplies from Iran, which accounted for more than 10% of the country's oil requirements, and the need to rein in prices, they added.

The new arrangement marks a significant shift from the times when India and China often competed with each other to acquire stakes in oil and gas fields in Asia and Africa. Their cooperation in the field of energy was limited and India is now also looking at the possibility of also getting South Korea and Japan to join the buyers collective so as to create some sort of a grouping of buyers, officials said.

People familiar with developments on both sides said the cooperation is in line with the "Wuhan spirit", a reference to the informal summit last year between Prime Minister Narendra Modi and President Xi Xingping that reset bilateral relations after the 2017 military stand-off at Doklam. They also pointed to Beijing's changed stand on the UN listing of Pakistan-based terrorist Masood Azhar.

Though India has raised the issue of flexibility on the sanctions on Iranian oil, the US has been non-committal. On Monday, visiting US commerce secretary Wilbur Ross said his country will not ensure sale of cheaper oil to India as the commodity is controlled by private firms.

"Oil is owned by private people, so the government cannot force people to make concessionary prices," Ross, here to participate in a trade forum, told reporters.

However, US ambassador Kenneth Juster said his country is working with other producers such as Saudi Arabia to ensure "adequate supply of oil".

Though India has turned to alternative suppliers such as Saudi Arabia, the UAE and Kuwait to make up for the lost volumes from Iran, supplies from these sources is unlikely to be as cheap as Iranian oil as Tehran provided 60 days of credit and covered shipping and insurance costs.

With the population growth of India crossing thresholds, more opportunities must arise to economically engage the people. With China having in possession the largest hydro-electric power plant in the world, the largest industry in the world and the highest investment potential in the world, India, and China have a good opportunity for connecting via ties in bilateral trade & commerce.

(DIDHITI GHOSH is the Director of a cultural-exchange radio programme at Radio Satelitevisión y Americavisión, Chile & India Columnist at Agencia Mundial de Prensa headquartered in the USA. She is a professor & a certified conference interpreter of the Spanish language and is the Bureau Chief of INDIAN OBSERVER POST based in Kolkata. Contact: didhiti.24@gmail.com).