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Mittal, ONGC JVs: change in MoU tilted control

Sushma Ramchandran

Stake meant for ICICI Bank was shifted to SBI Caps

NEW DELHI: Global steel magnate Lakshmi Mittal may have had far greater control over his much-publicised tie up with the Oil and Natural Gas Corporation (ONGC), if the shareholding of financial institutions in the two joint ventures had not been altered at the last moment. The memorandum of understanding (MoU) concluded in July last had provided for a two per cent equity stake to be held by ICICI Bank. Ultimately when the agreement was finalised in November, the two per cent shareholding was handed over to the public sector SBI Capital Markets.

Informed sources here point out that when the MoU was concluded with the enthusiastic backing of the then Petroleum Minister, Mani Shankar Aiyar, it was not widely known that Mr. Mittal is a director on the board of ICICI Bank, which was to hold this crucial two per cent equity stake. ONGC Videsh Ltd., the overseas arm of ONGC, and the Mittal group hold respectively 49.98 per cent and 48.02 per cent equity stake in ONGC-Mittal Energy Ltd (OMEL). A similar shareholding pattern was agreed to for ONGC-Mittal Energy Services Limited (OMESL). The balance two per cent was to be held by a financial institution for both companies.

Industry experts point out that in case the deal had been concluded with ICICI as a shareholder in the joint venture, Mr. Mittal would have been viewed as having far greater influence over these companies than the public sector ONGC. As a director on the board, he could have been considered close to ICICI Bank's Chief Executive Officer K. V. Kamath. He would, thus, have been perceived as having greater control over the ONGC-Mittal ventures, which were meant to strengthen the country's energy security by helping India acquire equity stake in oilfields abroad.

Incorporated in Cyprus

Mr. Mittal is now in the limelight after his bid to take over the steel giant Arcelor, based in Luxembourg, has evoked extreme reactions all over Europe.

In fact, the press conference of visiting French President Jacque Chirac was dominated by the Mittal bid and the adverse response not only of the Arcelor chief executive but also that of the French and Luxembourg governments.

Sources say the decision to shift the two per cent financial institutions' stake in OMEL and OMESL was taken by the time the company was formally incorporated in November. The two companies are based in Cyprus to take advantage of the tax breaks available in this island country.

Till now, however, the tie-up has not yielded much benefits. The initial push to take over Petro-Kazakhstan failed with a Chinese company succeeding in that acquisition bid. Subsequently, the joint venture has taken up a project in Nigeria but the government has been viewing that with concern owing to the unstable nature of the regime in that country.

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