In major rejig, GSPC to beef up gas supply network

Gujarat State Petroleum Corporation (GSPC) is planning a major restructuring of business to improve the State-run company’s financial performance.

The company, under the newly appointed Managing Director Atanu Chakraborty, seeks to consolidate its leadership position in the gas transmission and distribution sector through possible acquisitions, while reducing emphasis on exploration and production (E&P).

GSPC, started operations in 1994 with E&P as its main business, is now one of the most aggressive players in the entire natural gas vertical.

But the expansion has come at a cost.

The ₹12,000-crore company, which reported a thin ₹35 crore profit in FY-14, has a debt burden of ₹12,000 crore.

Having long concentrated on Gujarat, the company recently won distribution licences in the Union Territories of Dadra and Nagar Haveli as well as Thane in Maharashtra.

On the cards are acquisitions of smaller city gas distribution agencies in Gujarat, Rajasthan, Punjab and the National Capital Region (NCR); massive pruning of its E&P portfolio; and stake dilution in the much publicised Krishna-Godavari asset.

To reduce stress on balance sheet, the group may also look at diluting a part of its 74 per cent holding in the merged city gas entity of GSPC Gas and Gujarat Gas.

What went wrong? GSPC had struck six discoveries in the KG basin in 2005. But it failed to monetise the finds due to difficult geology and management failures.

In 2009, the company undertook a $1.7 billion (₹11,430 crore today) programme to develop a part of the asset to produce 5.7-8.6 million standard cubic metres a day (mscmd) from 10 wells by June 2012.

Three years later, GSPC is yet to announce commencement of production from the KG field, while costs have overshot the estimate by 30 per cent. With 80 per cent ownership, GSPC booked the largest share of the loss.

KG is not the only area where money is locked. The company had interests in 64 assets, including 11 in Egypt, Yemen, Australia and Indonesia. Barring a few assets in India, the E&P campaign drew a blank. The loss was particularly heavy in overseas assets due to stiff performance guarantee clause.

Chakraborty is now aiming to prune this portfolio to a fraction. But the performance guarantees ensure that the exit will come at a cost.

Selecting leader The job ahead is not easy and the Gujarat government is banking on Chakraborty’s rich understanding in the gas business to bring GSPC back on the rails.

The 1985 batch civil service officer, credited with making the recently concluded Vibrant Gujarat Summit a roaring success, drafted the Gujarat Gas Act in 2001.

Though quashed by the Supreme Court on the ground that natural gas is an exclusive domain of the Centre, the initiative prompted the Centre to come out with the Petroleum and Natural Gas Regulatory Act in 2006.

Focus on earnings Chakraborty on his part has started off by making a strong pitch to the Centre for grating the remunerative price to the difficult KG asset. The government has already agreed to offer a higher price to such assets. However, a transparent mechanism is yet to be announced.

While the acquisition of Gujarat Gas has made GSPC the single largest city gas distributor in the country, Chakraborty is aiming to further consolidate its position by acquiring smaller companies.

Talks are already on with a joint venture between Vadodara Municipal Corporation and GAIL (India) Ltd for acquiring its gas distribution network in the city. Also on the cards is a merger of Sabarmati Gas (a joint venture between GSPC Gas, Bharat Petroleum Corporation and others) with itself. Sources are tight-lipped about the possibilities of acquiring Adani outfits in Vadodara and Ahmedabad.

With the construction of the Mehsana (Gujarat)-Bhatinda (Punjab) pipeline set to begin this fiscal, GSPC is planning a major expansion of its distribution network in Rajasthan, Punjab and NCR.

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