OREANDA-NEWS. April 26, 2011. India’s Oil and Natural Gas Corporation has hired two investment banks to help it acquire a stake in Russia’s Bashneft, according to people close to the matter. Rothchild and Citigroup will advise state-owned ONGC on its attempt to buy a 25 per cent stake in the Russian production and refining group, which has a market value of USD 10.5bn.

India has been leveraging on its historic ties with Moscow to secure energy assets in Russia as it struggles to compete with financially stronger Chinese oil and gas groups in the race for energy resources. Russia had been a close partner of India’s during the Soviet era but relations fell dormant between the two for more than two decades after the collapse of communism in 1991.

However, in the past five years the heads of the two nations have been seeking new business and closer political alignment. Dmitry Medvedev, Russian president, last travelled to India in December with some of Russia’s largest companies in an attempt to boost trade. During his two-day trip to New Delhi, Mr Medvedev announced 15 agreements to align India’s oil and gas companies with Russian energy groups.

One of the deals was a framework agreement between ONGC and Sistema, which owns the stake in Bashneft that the Indian company wants to buy. It paved the way for the two companies to share equity in their Russian oil assets and consider joint operations in other countries.

ONGC, which has a market capitalisation of USD 52bn, acquired Imperial Energy, a London-listed company with most of its assets in Russia, for nearly USD 2.1bn in December 2008. Meanwhile, Sistema, which is controlled by Russian billionaire Vladimir Yevtushenko, has large stakes in several oil producing and refining groups in Russia, including Bashneft and RussNeft.

Bashneft’s oil production in 2010 hit 276,000 barrels per day. This is expected to grow after it won the tender to develop the Trebs and Titov oilfields in the Russian Arctic, which have an estimated 200m tonnes of reserves.

ONGC has come under fire from India’s official auditor, which questioned the group’s transparency and its ability to secure overseas assets. The Comptroller and Auditor General of India said ONGC had had a habit of expressing intentions of buying foreign assets – in Vietnam, Australia and African countries – and failing to follow through. The CAG added that out of 36 acquisitions, only five had been successful.