Reliance Industries Limited recently grabbed headlines for making its first-ever investment in Blockchain based technology firm VAKT Holdings Pvt Ltd by acquiring a 5.56% stake in the blockchain start-up for $5 Million. The acquisition underscores RIL’s commitment to expand into emerging technologies, most importantly blockchain. Earlier this year, it was reported that Reliance may float its own cryptocurrency dubbed Jio Coin.
So why did Reliance Industries Limited venture into the blockchain space? The acquisition is viewed as a strategic move to integrate emerging technologies in its operations. The strategic investment is Reliance’s first investment in the blockchain start-up. It came after Reliance Jio Infocomm, the telecom arm of Reliance Industries, was said to be in the process of hiring a team that will focus on artificial intelligence (AI), machine learning and blockchain.
Now, VAKT is a UK-based firm set up in December 2017. It was formed as a result of an alliance with nine major energy companies and banks, including Shell, Statoil, Mercuria, Societe Generale, and ABN Amro. Although VAKT is still in its development stages, there are plans that member companies will be among the first to gain access to it in 2019 which includes Reliance now. Reliance will be primarily will be using it for the trading of oil and gas.
Why did Reliance decide To Buy Stakes Blockchain startup VAKT?
- Bring down cost of energy trading: According to the Reliance, leveraging blockchain solutions will help in reducing administrative and operational risks and costs of energy trading. It will help reliance to move away from traditional and cumbersome paper-based trading contracts and operations documentation to digital smart contracts.
- Quicker turnarounds: Through Blockchain-based solutions, the company can transform the full trade life-cycle. It will also eliminate reconciliation and paper-based processes, enhance efficiency and create new trade finance opportunities. The DLT solution monitors the full life cycle of energy trading, as well the manual processes of maintaining information on paper, as well as mitigating risks and fostering cost-efficiency. Such solutions will also ensure cost-effectiveness, quicker turnaround and potentially unlock liquidity for businesses.
- Digitise processes: Blockchain enabled solutions will accelerate Reliance’s digital ride through active participation in emerging and evolving energy markets. The blockchain platform will help reliance to integrate with the electronic bill of lading (eBL) platform to issue and manage an electronic bill of lading through which it will be able to digitally transfer of the title of goods from the seller to the buyer in the persistent trade.
- Unify all parties under one platform: The blockchain-based solution will also bring significant improvement in Reliance as an organisation involved in buying and selling commodities and providing services internationally, as it will bring together all parties onto one platform.
- Gain a significant head start in Blockchain: Reliance’s investments in IoT applications and Blockchain is expected to give the company a head start over its competitors. Through the investment, it can avoid data tampering in the IoT ecosystem. RIL’s team will get strategic help to work implementing blockchain products.
- Future proof businesses against old business models: By leveraging blockchain based solutions, Reliance is of vision to reduce the cost of trust and coordination with external parties. Through this, Indian conglomerate will be able to create new business models through multi-sided markets and digital assets. Improve business network accountability and operational efficiency.
- Optimise upstream operations: Upstream operations involve exploring the oil and gas deposits and the associated sub-operations. Here the Blockchain solutions that it will be provided from Vakt will help Reliance Industries to streamline the mining process and securely transact assets recovered in the exploration of oil and gas.
Here are some of the sectors where RIL will leverage blockchain solutions:
Primary Sectors –
- Energy Sector (Solar)
- Oil, Natural Gas & Petrochemicals Industry
Secondary Sectors-
- Retail Sector
- Telecom & Media Sector
- Supply chain & Logistics Industry
RIL to leverage Blockchain In the Petrochemical & Energy Sectors
Petrochemical Sector –
- The petrochemical industry deals with the acquisition of lands for various processes, such as investigation, determination, and creation of petrochemicals and this entails paperwork, and paperwork means chances of disputes around proprietorship. Through smart contracts, RIL will be able to follow up the transactional details in real-time. Such agreements involve legal papers that demand security. This is where blockchain and smart contracts can help the petrochemical industry.
- Oil and gas commodity trading can often be a razor-thin profit economy, so optimization of any kind is critical for a company’s bottom line. It will also address issues such as reduced brokers’ fees; reducing fraud, error and otherwise compromised transactions; and limiting credit risk and transaction capital requirements.
- A blockchain solution in the oil and gas commodity marketplace for Reliance would not only reduce the costs associated with maintaining, updating, and securing proprietary trading systems, but also the costs associated with labour, data management, data visibility, settlement delays, dispute resolution, and inter-system communication — all without compromising on proprietary data, information sources, or trading methods which will give reliance competitive edge in global market.
Energy Sector –
- In the energy sector, the microgeneration of electricity is becoming a huge trend. New energy initiatives such as home power generation and community solar power are becoming alternative options in filling in gaps of power supply across the world. Reliance through microgeneration will be able to add traditional power suppliers to fosters creation of a solar energy market.
- By leveraging blockchain solutions, RIL can use smart meters which can register produced and consumed electricity in a Blockchain, which will allow for consumption of the surplus energy in a different location, providing credits or currency to the real producer. The credits can then be used against the grid when the microgenerator needs additional electricity from the solar grid.
- The blockchain enforces these contracts in real time, enabling utility market to be created with minimal red tape which has the potential to enhance the quality of service delivery while improving confidentiality and integrity of data for Reliance’s Solar energy investments.
Why the acquisition is a win-win strategy for RIL
- VAKT is a consortium of leading global energy majors, commodity traders and banks with a vision to digitize the global commodities trading industry, create a secure, trusted ecosystem, powered by Blockchain.
- A recent Deloitte Report on Integration of Blockchain in Oil and Petrochemical industry indicated how the integration of blockchain technology can result in greater transparency and efficiency. Years of volatility in commodity prices, growth stagnancy, and limited expansion have put exploration and production companies in a tough spot. They’ve been forced to drastically reduce drilling times and search for other means of reducing cost and expense to maintain acceptable margins.
In Conclusion
In 2018, The conglomerate has made several investments in the technology space. The acquisition is strategic given that VAKT operates in the energy and trading domain, which is in line with Reliance’s portfolio. Hence, the acquisition is in line with the RILs vision to make sure to keep up with the latest technologies.
