A Gu­jarat gov­ern­ment com­pany once cred­ited with the ‘big­gest ever’ nat­u­ral gas re­serve find in the coun­try is now bur­dened with a Rs 13,000 crore debt and des­per­ately needs a bailout


With debts of Rs 13,000 crore, the Gu­jarat State Petroleum Cor­po­ra­tion is in dire need of a bailout

OOn Au­gust 27, Con­gress leader Jairam Ramesh cited a Re­serve Bank of In­dia (RBI) no­ti­fi­ca­tion to de­mand that the State Bank of In­dia (SBI) de­clare the Gu­jarat State Petroleum Cor­po­ra­tion (GSPC) bank­rupt by the end of the day. Ramesh re­ferred to the RBI’s cir­cu­lar is­sued on Fe­bru­ary 12 which states that lend­ing banks should ini­ti­ate bank­ruptcy pro­ceed­ings against com­pa­nies that de­fault on loan re­pay­ments of Rs 2,000 crore or more if a res­o­lu­tion plan is not worked out within 180 days of the de­fault, be­gin­ning March 1.

Ramesh’s ar­gu­ment, how­ever, was er­ro­neous. For GSPC, In­dia’s sec­ond-largest gas trad­ing com­pany, in which the Gu­jarat gov­ern­ment owns 86.89 per cent eq­uity cap­i­tal, owes the out­stand­ing amount to not one but 19 com­mer­cial banks. The high­est out­stand­ing—Rs 1,459 crore as on July 31, 2018—is against SBI. More im­por­tantly, the com­pany has not de­faulted on re­pay­ments till now.

The mis­fire by the Con­gress, though, doesn’t take away the fact that GSPC is in a deep fi­nan­cial mess. Its out­stand­ing debt, as on April 13, stood at Rs 13,200 crore, with losses reg­is­tered in 2017 at Rs 16,603 crore. The com­pany has been strug­gling to bring the out­stand­ing to un­der Rs 7,500 crore, con­sid­ered a sus­tain­able debt level. Credit rat­ing agency Crisil con­tin­ues with its rat­ing BBB+ (‘Rat­ing Watch with Neg­a­tive Im­pli­ca­tions’) for GSPC. At a time when In­dian banks are strug­gling with non-per­form­ing as­sets (NPAs) to the tune of over Rs 10 lakh crore, GSPC is a big damp­ener to the Naren­dra Modi gov­ern­ment’s ef­forts to re­store the health of the In­dian bank­ing sec­tor.

On June 26, 2005, it was Modi who, as Gu­jarat chief min­is­ter, an­nounced that GSPC had made the ‘big­gest dis­cov­ery’ of its kind in the coun­try’s his­tory—an es­ti­mated nat­u­ral gas re­serve of 20 tril­lion cu­bic feet (TCF) in the Kr­ishna-Go­davari (KG) basin in Andhra Pradesh. One TCF gas can gen­er­ate 100 bil­lion units of elec­tric­ity. This gas find and the prom­ise of a ‘gas-based econ­omy’ fig­ured promi­nently in Modi’s suc­ces­sive po­lit­i­cal cam­paigns.

Thir­teen years on, GSPC’s bleed­ing ac­count books have given the op­po­si­tion am­mu­ni­tion to at­tack Modi—the Con­gress has al­leged a multi-crore scam in the com­pany and de­manded a CBI in­ves­ti­ga­tion. In­stead of gen­er­at­ing rev­enue of over Rs 20,000 crore for Gu­jarat, as Modi had promised in 2007, ex­plo­ration in the KG-OSN-2001/3 block, later re­named Deen Dayal block, landed GSPC with an out­stand­ing loan of Rs 19,270 crore by Novem­ber 2015. Iron­i­cally, RBI gov­er­nor Ur­jit Pa­tel, who was chair­man of the GSPC au­dit com­mit­tee between 2006 and 2013, kept ap­prov­ing the com­pany’s bor­row­ings even though com­mer­cial gas pro­duc­tion never started and the 2012 dead­line was passed by.

In 2003, GSPC, along with the Canada-based GeoGlobal Re­sources and In­dia’s Ju­bi­lant Off­shore Drilling, sub­mit­ted a joint bid for an ex­plo­ration block in the KG basin. The pri­vate

part­ners each held a 10 per cent stake. Af­ter spend­ing over Rs 23,000 crore on gas ex­plo­ration and re­lated work, GSPC, des­per­ate to shed its li­a­bil­i­ties, off­loaded its en­tire 80 per cent stake in the Deen Dayal West (DDW) gas field and other dis­cov­er­ies in the KG block to the Oil and Nat­u­ral Gas Cor­po­ra­tion (ONGC) for $1.19 bil­lion (Rs 7,738 crore) in 2017.

Warn­ing bells

A few days af­ter Modi’s an­nounce­ment of the ‘big­gest ever’ nat­u­ral gas find, V.K. Sibal, then di­rec­tor gen­eral of hy­dro­car­bons, punc­tured the claim, saying that es­ti­mates could not be made af­ter drilling just one well. The oil and gas reg­u­la­tor said the to­tal gas es­ti­mate was 2.2 TCF, about one-tenth of what had been claimed. Even GeoGlobal chief Jean Paul Roy, a Cana­dian ge­ol­o­gist, pub­licly ques­tioned Modi’s an­nounce­ment.

Ac­cord­ing to sources, in a 100page re­port sub­mit­ted in Novem­ber 2017 to ONGC, Ry­der Scott, a Houston-based oil and gas reser­voir eval­u­a­tion con­sult­ing firm, put the gas re­serves in the Deen Dayal block at about 1 TCF. The re­port has not yet been made pub­lic.

In a re­port tabled in the Gu­jarat as­sem­bly in March 2012, the Comptrolle­r and Au­di­tor Gen­eral of In­dia (CAG) se­verely crit­i­cised GSPC’s op­er­a­tions in the KG block and said that “nu­mer­ous faulty in­vest­ment and destruc­tive ad­min­is­tra­tive de­ci­sions” had caused the com­pany a loss of Rs 7,000 crore. It ob­served that GSPC’s ex­plo­ration cost in the KG basin was al­most 13 times the es­ti­mate while the out­come was much lower than orig­i­nally claimed. Four years later, an­other CAG re­port rapped GSPC for a 177 per cent rise in its bor­row­ings, from Rs 7,126 crore in March 2011 to Rs 19,716 crore in March 2015. ‘Why was the cor­po­ra­tion run­ning up debts and where was the com­pany blow­ing these all up?’ the re­port asked.

The CAG con­cluded that with lit­tle ex­per­tise in gas ex­plo­ration, GSPC had tied up with ‘friv­o­lous’ ven­dors and pro­cured ex­plo­ration blocks in far­away coun­tries, only to sell them off at a big loss. ‘The com­pany sur­ren­dered 10 out of 11 over­seas blocks between 2011 and 2015, in­cur­ring an

ex­pen­di­ture of Rs 1,757.46 crore, of which Rs 1,734.12 crore was writ­ten off,’ the CAG re­port said.

Be­fore fi­nal­is­ing the ONGC deal, J.N. Singh, then man­ag­ing di­rec­tor of GSPC and now its non-ex­ec­u­tive chair­man, ad­mit­ted that the com­pany had botched up its for­eign ac­qui­si­tions. “Wrong de­ci­sions were made by my pre­de­ces­sors. We should not have ac­quired blocks in for­eign coun­tries, rather we should have fo­cused on de­vel­op­ing as­sets here,” said Singh, who is also Gu­jarat chief sec­re­tary.

In 2016, the Pub­lic En­ter­prise Com­mit­tee of the Gu­jarat as­sem­bly crit­i­cised GSPC for its “over­con­fi­dence” in ac­quir­ing the KG basin block. ‘It shows the com­pany has taken a huge risk while plac­ing the bids. With­out as­sess­ing the var­i­ous fi­nan­cial and tech­ni­cal as­pects, GSPC placed a high bid to ac­quire the KG block. Due to this, the com­pany’s un­se­cured debt rose to Rs 2,140.53 crore between 2006 and 2011,’ the re­port said.

The Con­gress has also de­manded an in­ves­ti­ga­tion into the al­le­ga­tion of conflict of in­ter­est against Gu­jarat en­ergy min­is­ter Sau­rabh Pa­tel. In April 2008, when Pa­tel was state en­ergy and petro­chem­i­cals min­is­ter, his brother Me­hul Dalal and sis­ter-in-law Nikita Dalal set up Suryaja In­fra­struc­ture Pri­vate Ltd. Next year, Pa­tel and his son Ab­hay Dalal got 5,000 shares each in the com­pany. In Oc­to­ber-De­cem­ber 2009, Suryaja in­vested in Gu­jarat Nat­u­ral Re­sources Lim­ited (GNRL), which later en­tered into a joint ven­ture with GSPC, an en­tity di­rectly mon­i­tored by Pa­tel since he hap­pened to be en­ergy min­is­ter.

“GNRL’s an­nual re­port for 2016-17 in­di­cates the com­pany had been given a size­able par­tic­i­pa­tion share in as many as eight valu­able hy­dro­car­bon blocks. Con­sid­er­ing the high value of the hy­dro­car­bon re­sources in these blocks that be­long to the pub­lic, the gov­ern­ment ought to have cleared the air by sub­ject­ing such al­le­ga­tions to an in­de­pen­dent in­ves­ti­ga­tion,” says for­mer Union fi­nance sec­re­tary E.A.S. Sarma, who wrote sev­eral times to the En­force­ment Direc­torate, red-flag­ging GSPC’s trans­ac­tions. “That no such in­ves­ti­ga­tion has yet been or­dered cre­ates scope for ap­pre­hen­sion.” Pa­tel, how­ever, has dis­missed the media re­ports about his con­nec­tion with GNRL as “po­lit­i­cally mo­ti­vated”.

On the de­lay in gas pro­duc­tion, GSPC main­tains it was a chal­leng­ing task to ex­tract gas from a high pres­sure, high tem­per­a­ture (HPHT) zone, and that the pro­duc­tion wells had to be drilled to a depth of 5,000 me­tres or more, mak­ing them some of the deep­est ex­plo­ration wells in In­dian ter­ri­to­rial wa­ters. The Deen Dayal block dis­cov­ery was achieved af­ter drilling up to 5,061 me­tres, at a tem­per­a­ture of 400 de­grees Fahren­heit.

ONGC to the res­cue

ONGC’s de­ci­sion to buy GSPC’s 80 per cent state in the KG basin had raised eye­brows, with al­le­ga­tions that the bailout was a bid to hide years of mis­man­age­ment and wrong­do­ings at GSPC. Even the CAG ques­tioned the val­u­a­tion of KG as­sets, saying GSPC had not pro­vided the doc­u­ments re­lated to the val­u­a­tion pro­ce­dure. The CAG said it had sought the doc­u­ments since the val­u­a­tion was done by the two com­pa­nies based on the value as­signed by only one of the two par­ties. “The com­pany pro­vided some agenda pa­pers re­lated to board meet­ings, but other doc­u­ments ev­i­denc­ing the process adopted for ar­riv­ing at the val­u­a­tion were not made avail­able,” the CAG said in its com­ments on GSPC’s fi­nan­cial state­ments for 2016-17. The GSPC, how­ever, re­futed the claim and main­tained that all doc­u­ments sought by the CAG had been pro­vided.

Union min­is­ter of petroleum and nat­u­ral gas Dhar­men­dra Prad­han dis­missed the Con­gress’s charge that the Cen­tre had pres­sured ONGC into the GSPC buy­out, main­tain­ing that it

was a com­mer­cial deal. Ac­cord­ing to Singh, GSPC had orig­i­nally con­sid­ered sell­ing the Deen Dayal gas fields to the BG Group in the UK, but later chose state-owned ONGC.

Both ONGC and GSPC had hailed their deal as “ben­e­fi­cial to the na­tion”. “The ac­qui­si­tion fits well with ONGC’s strat­egy to en­hance nat­u­ral gas pro­duc­tion from do­mes­tic fields on a faster pace, more so to re­duce im­port de­pen­dency of hy­dro­car­bons by 10 per cent by 2021-22,” then ONGC chair­man and man­ag­ing di­rec­tor Di­nesh K. Sar­raf had said. Ac­cord­ing to petroleum min­istry sources, how­ever, there is no pos­si­bil­ity of com­mer­cial pro­duc­tion from the Deen Dayal blocks in the next five years.

Is GSPC bank­rupt?

Asked about Jairam Ramesh’s al­le­ga­tions on loan de­fault, the GSPC man­age­ment mailed a re­sponse to in­dia to­day: “The com­pany has al­ways been ser­vic­ing its loans, in­clud­ing pay­ment of in­ter­est and re­pay­ment of prin­ci­pal amounts. There has never been a de­lay or de­fault even by a sin­gle day to any bank.” True, GSPC has not de­faulted yet, but the com­pany is un­der se­vere stress. It is ev­i­dent from the hir­ing of SBI Caps to de­vise a de­tailed re­align­ment plan to im­prove GSPC’s fi­nan­cial and op­er­at­ing per­for­mance. The plan pre­pared by SBI Caps sug­gests that the state gov­ern­ment and its other en­ti­ties take over a part of GSPC’s bur­den to re­duce its out­stand­ing to un­der Rs 7,500 crore. GSPC of­fi­cials add that the com­pany is do­ing good busi­ness. “With the daily gas sales vol­ume av­er­ag­ing around 12 mil­lion stan­dard cu­bic me­tres in 2017-18, GSPC gen­er­ated a rev­enue of Rs 10,589 crore,” the GSPC man­age­ment told in­dia to­day.

As part of the re­align­ment plan, GSPC has sold its stake in its listed sub­sidiary, Gu­jarat Gas, to Gu­jarat State Petronet for Rs 3,250 crore. The plan also pro­poses re­duc­tion in lend­ing rates by banks and the SBI tak­ing over a share of loans from other banks to re­duce the size of the lenders’ con­sor­tium. These mea­sures may re­duce GSPC’s li­a­bil­i­ties, but the story of over-am­bi­tion, am­pli­fied by tall claims and mis­man­age­ment of funds, will re­main a blem­ish on the com­pany’s legacy.


RAIS­ING HOPES Naren­dra Modi, then chief min­is­ter of Gu­jarat, an­nounces GSPC’s Kr­ishna Go­davari basin nat­u­ral gas find in June 2005

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