Here we go again. India’s Financial Express has a story that reads as if it was filed last summer and the Editor just got around to hitting “publish”:
“The government is planning to set up a sovereign wealth fund (SWF) to acquire oil and gas blocks abroad…The National Manufacturing Competitiveness Council is examining the feasibility of setting up an SWF to acquire raw materials and assets from abroad not only in the energy industry but across all sectors. We are awaiting their recommendations,” said Vivek Kumar, joint secretary, petroleum ministry.
Recall that the idea for an Indian SWF has been popping up for over a year but was (ostensibly) “abandoned” in August. Well, according to this article, the key drivers underpinning this now resuscitated SWF will be to:
- joint-bid on commodity assets with countries like China;
- engage in oil diplomacy with resource rich countries; and
- collaborate with the private sector to gain access to resource technologies.
It’s perhaps understandable that this debate has been rekindled given that these comments were made at a roundtable on “overseas energy acquisition to ensure India’s energy security”. And given the spate of investments by the Chinese funds in commodities and minerals around the world, I can understand why other countries would be interested in getting involved. After all, Japan recently said it was considering a new SWF to make investments in the global resource industry. Perhaps these nation states are coming to the realization that they cannot rely on their private sectors to ensure energy security and independence?
After all, there must be a good reason why the US government has the strategic petroleum reserve (SPR), which is the single largest emergency supply of oil in the world and is valued at…wait for it…almost $100 billion! The SPR was set up in 1975 after the oil crisis disrupted supplies to the United States. Should we perceive this US pool of real assets accumulated for a crisis any differently than a pool of financial assets for the same purpose? I recognize the SPR isn’t a SWF; it’s kinda the opposite actually in that it’s investing financial capital in stuff you put in the ground. But, ultimately, the US government has made the decision to stockpile assets for a rainy day (i.e. future oil crisis). Other governments should probably be allowed to do the same, no? (I recognize that might mean stepping outside a couple of the guidelines in the Santiago Principles, but I’m nonetheless interested in thinking this through.) Maybe we should just call India’s new SWF the Strategic Petroleum Reserve Fund and let them get on with it? Cogent thinking on this topic welcome!