ABU DHABI - Overseas Investments.

The International Petroleum Investment Company (IPIC) of Abu Dhabi, now an important player on the market, has a major share of Europe's second biggest producer of polyolefins (raw materials for production of plastic) and in Austria's largest industrial group. It has spread its investments in the oil markets of the Far East, Europe and North Africa.

By far the wealthiest state in the Gulf in per capita terms, Abu Dhabi now has more than $200 bn worth of investments outside the emirate. Thanks to high oil and gas export prices since March 1999, this emirate has more cash reserves and overseas assets than all other GCC states put together. Abu Dhabi's income from oil and gas exports and petrochemicals will be rising considerably in the coming years as its production capacities are being expanded (see OMT & Gas Market Trends No. 2 of last week).

Headed by one of Shaikh Zayed's bright young sons, IPIC is considering investment in major downstream oil and gas operations on both sides of Suez, as Kuwait Petroleum Corp. (KPC) and Saudi Aramco have done. But it is more cautious than these two neighbours.

The Abu Dhabi Investment Authority (ADIA) is the powerhouse behind IPIC. Established in the 1970s to channel the emirate's surplus oil revenues into profitable investments both at home and abroad, ADIA has since become the second most important institution in Abu Dhabi's economic system next to the Supreme Petroleum Council (SPC). The current UAE oil minister and key officials in various sectors in Abu Dhabi have come from ADIA. The Abu Dhabi Investment Co. (ADIC) is the executive arm of ADIA (see profiles in APS Review No. 4 of next week).

IPIC was created in 1984 as a 50-50 venture between ADIA and the Abu Dhabi National Oil Co. (ADNOC) to focus on oil-related acquisitions overseas. Shaikh Mansour Bin Zayed Al Nahyan, son of the Abu Dhabi Ruler and UAE President Shaikh Zayed Bin Sultan Al Nahyan, is the chairman of IPIC's eight-member board. He and the other board members were appointed in September 1994 by the SPC Chairman, Abu Dhabi's Crown Prince Shaikh Khalifa Bin Zayed, the ruler's first son who heads the emirate's Executive Council (the local government).

The main logic behind IPIC's investments overseas is the same as that of its Kuwaiti and Saudi counterparts: to secure long-term access to premium markets for Abu Dhabi's crude oil, gas liquids, refined petroleum products and petrochemicals; and to diversify Abu Dhabi's economy to offset the impact of low crude oil prices on its revenues.

Foreign acquisitions are decided on the basis of their financial merits, as judged by ADIA, and their strategic importance to Abu Dhabi's petroleum sector as judged by ADIA and ADNOC. Therefore each investment proposal by IPIC must be studied carefully and approved by both ADIA and ADNOC, which takes a long time. Before the actual move is made, the decision must be approved by the SPC, which can also take a long time. When ADIA and ADNOC disagree on an acquisition, the SPC has the final say. SPC intervention is rare, because the council's membership represents three different power groups in the emirate. But this will change eventually.

There is the Zayed group, of Shaikh Zayed and his younger sons and nephews and his most senior advisors. Now ADIA is under this group. ADIA's head is Shaikh Ahmad Bin Zayed - a full-brother of Shaikh Mansour from Shaikha Fatima Bint Mubarak, Shaikh Zayed's favourite wife. Second is the Khalifa group, of the crown prince and his powerful son Shaikh Sultan Bin Khalifa, and allies. The third group, the Bani Khalifa, consists of Shaikh Tahnoun Bin Mohammed Al Nahyan, a powerful cousin of Shaikh Zayed (who is the governor of the eastern province, with Al Ain his capital), and his allies. In the post-Zayed era, however, the most powerful group in Abu Dhabi will be that of Khalifa and the day-to-day ruler is expected to be his son Sultan Bin Khalifa.

Reflecting ADIA's way of thinking, IPIC has a low-key style, rather than an aggressive approach. So far it has tended not to acquire controlling equity, preferring to invest just enough to have a strong influence. But it keeps the option of gradually increasing its stake and insists on having its key executives on that company's board of directors.