GSPC, GAIL, Adani group in race for BG's stake in Gujarat Gas

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GGCL's supplies crucial for city gas distribution play

The race for BG Group's controlling 65.12 per cent stake in the Rs 1,800-crore Gujarat Gas Co Ltd (GGCL) may have more twists and turns than is perceived.

While keen competition is expected between the Gujarat Government-controlled fully integrated GSPC Group and the Union Government-controlled downstream gas-major GAIL (India) Ltd, the challenges ahead of GGCL in sourcing gas and beating increasing pressures on margins may act as a dampener to BG's pricing aspirations, especially in a slowing market.

The anticipated presence of the Adani Group, with its aggressive strategies, may also add colour to BG's stake-divestment proposal. Interestingly, the Adanis, who have a tie-up with Indian Oil Corporation for city gas distribution (CGD), are unlikely to hitch up with their public sector partner in this deal.

“We are yet to finalise our strategy on GGCL,” an Adani source said, confirming that the group had aggressive expansion plans in the CGD sector.

Though a number of other companies have evinced initial interest, sources clos to the development are not pinning hopes on other oil and gas majors — Indian or foreign — to make a strong pitch for GGCL.

Strategic value

While officially none of the companies involved is ready to talk, sources confirmed that GSPC (reportedly the country's largest CGD player by volume of gas sold through group outfit GSPC Gas), which has been successful in creating a business model based entirely on costly short-term liquefied natural gas (LNG), is all set to throw its hat into the ring for GGCL. BG is also in touch with the State-controlled company, a source said.

Perhaps the only company in the oil sector that is fully integrated, GSPC has on its side the undisputable muscle in transmission and distribution in Gujarat through a 2,200-km pipeline network. At a time when Indian players turned away from LNG in the hope of copious flows from Reliance Industries' D-6 fields, GSPC struck the best offshore deals to feed the State with nearly 10 million standard cubic m a day (mmscd) of LNG. However, what makes GSPC's case weak is lack of cash. Having entered a high-spending mode in exploration and production in India and overseas, the company may depend on major capital infusion by the State Government to bid for GGCL. Though keen to bid on its own for GGCL, ground realities may also force the company to rope in consortium partners.

GAIL, meanwhile, is reportedly working out options, including roping in consortium partners from the central public-sector oil and gas sector. Though cash-rich and in a position to offer GGCL the much-needed upstream integration, pricing of BG's stake will be important to the company's aspiration to break into Gujarat's thriving CGD sector. “There are definite aspirations among GSPC, GAIL and Adani. However, overall economic realities may not allow anyone to offer a fancy price for GGCL. On the contrary, possibilities of tough negotiation are not ruled out,” a market source added.

(This article was published on December 23, 2011)
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