Constantly being out bid by sovereign fund-backed rival China for overseas energy acquisitions, despite foreign exchange reserves of $283.5 billion, India has finally realised the need to have a sovereign wealth fund to help its oil companies make much needed energy acquisitions overseas.

Such a fund would have proved valuable in acquiring foreign resources when the value of hydrocarbon assets had plunged due to the recession, with oil falling to a low of around $42 a barrel in late 2008 and early 2009.

Armed with a pittance of a budget, petroleum minister Murli Deora  made a futile trip to Africa in January this year to seal oil and energy asset pacts, (See: Murli Deora goes on African oil hunt with small change)  in the aftermath of India's oil majors repeatedly losing out to fund-flush Chinese rivals in overseas bidding, (See: ONGC, OVL pitted against Chinese sovereign funds for foreign acquisitions).

The country is finally planning to set up a $20-billion sovereign fund to aid state-owned ONGC to compete with its Chinese rivals in acquiring oil and gas assets abroad.

Deora had asked the finance ministry in January to allocate a special fund to help public sector oil and energy companies to enable them to match foreign bidders for overseas energy assets. (See: Petroleum ministry wants special fund for overseas acquisitions)

The much needed fund is required to sidestep the multi-layers of approvals required by Indian oil and gas majors, when they enter bidding contracts for oil and gas assets in competitive global markets.

The petroleum ministry had left it to the finance ministry to work out the details, including how the fund should be created or the size of the corpus, among other things.

ONGC and its overseas arm ONGC Videsh have often had to bow out of bidding races as they had been unable to match the biding power of sovereign-fund backed overseas rivals, notably China, in acquiring overseas energy assets.

The Indian government has so far armed ONGC Videsh with a mere Rs300 crore ($66 million) to make investment on its own, and for sums beyond that, the oil major has to go through a labyrinth of approvals from various ministries.

The petroleum ministry said this week that it has now recommended to the finance ministry to set up a $20-billion sovereign fund as it would help Indian oil companies to better compete with China.

India currently produces 680,000 barrels of oil per day and spends close to $124 billion (Rs600,000 crore) to import 75 per cent of its crude oil requirement.

According to the Paris-based International Energy Agency, India's energy consumption is likely to more than double by 2030 to 833 million tons of oil equivalent, which would make the country's import bill soar to more than $248 billion if taken at an average price of $66 a barrel of crude.

China, which has two sovereign wealth funds, SAFE Investment Company and China Investment Corporation have a corpus of over $200 billion each, along with thefunds with Chinse state-owned oil companies; in 2009, China made global acquisitions worth $32 billion in the energy and mining sector.

In contrast, ONGC's largest acquisition was made in December 2008 for the UK's Imperial Energy for $2.1 billion. (See: ONGC completes acquisition of Imperial Energy)

ONGC has hydrocarbons assets in Kazakhstan, Russia, Angola, Nigeria, Sudan, Syria, Venezuela, Cuba, Brazil, Columbia, Vietnam and Myanmar, among others.

But in the past two years, ONGC has repeatedly lost to Chinese companies in expanding its overseas energy assets.

Although ONGC had envisaged interest in acquiring Swiss oil exploration firm Addax Petroleum, China moved exceptionally swiftly and it's second-largest oil company, Sinopec, a subsidiary of China Petrochemical Corporation, clinched the deal for $7.2 billion. (See: Sinopec to acquire Addax Petroleum for $7.2 billion)

In December 2009, ONGC lost its bid to develop Iraq's giant Halfaya oilfield to a consortium led by a China National Petroleum, which under cut OVL's $1.76 per barrel bid. This was the second time that the state-run oil explorer lost a bid to CNPC in Iraq. (See: ONGC again loses bid for Iraqi oilfield to Chinese-led group)

Earlier, in the first round of Iraqi oil field auction in June, OVL, bidding along with Russia's Gazprom and TAPO, had lost the Zubair oilfield for seeking a remuneration five times higher than the $1.90-$2 a barrel that Baghdad was willing to pay.

In January 2010, ONGC lost a bid for an Algerian oil field in the Berkine Basin to a consortium led by a Chinese oil firm China's National Offshore Oil Corp (CNOOC), which had an association with PTTEP of Thailand. (See: ONGC loses Algerian oilfield bid to China's CNOOC-led consortium)

ONGC is fighting a bidding war since July 2009 to acquire a 75-per cent stake in YPF, the Argentine unit of the Spanish energy company Repsol, pitted against CNPC, which has teamed up with CNOOC to outbid ONGC with an offer reported to be between $13 billion to $14.5 billion. (See: ONGC in race for stake in Repsol -YPF's Argentinean arm)

However, ONGC did win a joint bid last month to develop a crude oil block in Venezuela's Orinoco Belt as part of a consortium with Spain's Repsol and Malaysia's Petronas. (See: Repsol-ONGC consortium secures big oilfield in Venezuela)