It has been more than two years since Saudi Arabia’s national oil company, Saudi Aramco, announced a 15 billion dollars investment in oil to chemical (O2C) business for a 20% stake. It has been more than two years, but the deal is not finalized yet, and now according to Reliance Industries, both companies are re-evaluating the deal.
“RIL and Aramco have mutually determined that it would be beneficial for both parties to re-evaluate the proposed investment in O2C business in light of the changed context,” RIL said in a statement.
Why was the deal called off?
However, the primary reason behind calling off the deal seems to be something else. The primary reason behind the deal being re-evaluated is probably Reliance’s lower debt. Back in August 2019, when the deal was announced, Reliance’s O2C business had above 20 billion dollars debt and telecom business also had more than 20 billion dollars debt. So, the total debt of the company was more than 40 billion dollars, and it wanted to pay back at least 20 billion dollars with money from Saudi Aramco.
But after the pandemic, Reliance Industries sold a 33% stake in Jio for 22 billion dollars, and paid back all the telecom entity debts. Now, O2C entity has 25 billion dollars from the parent Reliance Industries Limited (RIL) which does not look bad on the balance sheet. The company is no longer in desperate need of 15 billion dollars from Saudi Aramco, and Saudi Arabia also no longer trusts Reliance ambitions in the O2C business.
Given the commitment of Reliance to invest 10 billion dollars in the green energy business and have the Gigafactories in Jamnagar (the location of O2C business), Saudi Aramco is of the view that the former would get more attention and energy than the latter.
“These plans are counter-intuitive to Aramco’s interest and world view. Oil production countries have been making the case that fossil fuel assets need to be given more time and investment so that the energy transition can be gradual,” said an equity analyst.
In the last few months, Reliance Industries acquired many companies, made investments in multiple new energy startups, and stitched partnerships with numerous firms to make a big bang entry in the green energy market.
The largest acquisition is of REC Solar from ChemChina, for 771 million dollars. Reliance New Energy Solar Limited also purchased 40% shares of Sterling and Wilson Solar from Shapoorji Pallonji & Co. Pvt. Ltd (SPCPL) and Khurshed Yazdi Daruvala, for 2,845 crore rupees.
Reliance Solar became the lead investor with an investment worth 45 million dollars in Series C funding of German solar wafer manufacturer NexWafe GmbH (NexWafe).
Apart from solar, the other big green energy sector where Mukesh Ambani is focusing on, is Hydrogen energy. RIL partnered with Denmark’s Stiesdal, towards its ‘1-1-1’ green-hydrogen goal. Stiesdal has developed an electrolysis technology that is cheaper than others, and this company will help RIL in its hydrogen-driven vehicles ambitions.
Atmanirbharta in green energy:
During the last Annual General Meeting, Mukesh Ambani announced that his company will invest 75,000 crore rupees in green energy, especially solar and hydrogen, in order to become the largest energy producer in the country and to achieve Prime Minister Narendra Modi’s dream of atmanirbharta in the energy sector.
Reliance has also made a commitment to become a net-zero (zero carbon emission) company by 2030, thanks to its massive investment in green energy. The current worldview of Reliance does not match that of Saudi Aramco, which wants a gradual shift towards green energy, so that fossil fuel-dependent nations can manage the transition of the economy.
Saudi Aramco suspects that the 15 billion dollars worth of investment will be used by RIL to pay back O2C business’s debt, so that the company can freely raise money for the green energy entity.
The green energy business is the future, and given Prime Minister’s call for atmanirbharta in energy through a transition from fossil fuel to green energy, Reliance no longer has an intention to take Saudi Aramco’s investment for the legacy business.
Reliance Industries is placing itself very strategically, as it plans to take over the market now dominated by Chinese firms (supply of equipment and technologies) not much into production. So, while the companies like Adani Group, ReNew power, and many other companies in the energy business would focus on the production part, RIL plans to end India’s dependence on China for production equipment and technologies.
As TFI has argued earlier, Hydrogen fuelled vehicles and not electric vehicles, are the future of mobility, given the various advantages they have over electric vehicles. So, on one hand, electricity production will move to solar, and on the other hand, mobility will move to hydrogen, and Mukesh Ambani is set to benefit enormously from both. Also, with the entry into the green energy sector, his company will play a very crucial role in achieving Prime Minister Modi’s dream of atmanirbharta in the energy sector.