To reduce pressure on the current account deficit (CAD), the Union government has asked the State-owned power firms to utilise foreign debts to fund their foreign acquisitions completely. Instead of using their own cash reserves, the State power fims should utilise foreign debts or domestic loans to acquire foreign firms, so that they don’t deplete India’s foreign exchange reserves and put more pressure on the current account deficit.
The government and industry officials said that State-run ONGC and Oil India, which have drawn from their own reserves for part of acquisition costs in the past, are actively considering raising only dollar loans to fund over $5 billion acquisition of stakes in a gas-rich Mozambique block. On June 25, ONGC and Oil India together signed a definitive agreement with the Videocon group to acquire a 10 per cent stake in the Rovuma Area-1 offshore block for $2,475 million.
After two months, ONGC alone signed a similar agreement with the operator of the block, Anadarko Corp to acquire its 10 per cent stake for $2,640 million. The gas-rich block has estimated recoverable reserves of 35-65 trillion cubic feet.
Soon after ONGC announced acquisition of 10 per cent stake of Anadarko Corp in the Mozambique gas field, the rupee fell to a record low of 69 for a dollar. But it has gradually recovered to about 64 recently.