'Gujarat State Petroleum Corporation should stop foreign operations, exploration'

GANDHINAGAR: Only a viable business model, which includes stopping some of the unprofitable foreign operations immediately where huge sums have gone down the drain and progressively getting out of its other oil-and-gas explorations, can help Gujarat government's premier PSU Gujarat State Petroleum Corporation (GSPC). Well-placed sources told TOI, a blueprint of the business model, discussed at a recent GSPC board meeting, is already under consideration at the "highest level", and a final decision in the matter may be taken after the state assembly polls.
Already, GSPC's total liabilities have reached Rs 8,000 crore, most of it borrowed from banks. A senior official said, "While GSPC succeeded in a market borrowing of Rs 3,000 crore in September, at best this would be an interim relief to the PSU for a year. During this period, it should first close down its foreign operations, especially in Egypt, where possibility of finding oil or gas appears limited." He added, "At the same time, GSPC must go in for commercial production of gas whatever little it has been found in Krishna-Godavari (KG) basin latest by July next year."
In fact, the official said, "While stopping foreign operations would mean end of unprofitable operations, commercial production in KG basin would do rest of the job. The viable business model requires that one recognizes GSPC doesn't have more than two trillion cubic feet (tcf) of gas, just one-tenth of what chief minister Narendra Modi announced in 2005."
The gas, he said, was enough to earn Rs 10,000-12,000 crore, helping GSPC get over its financial crunch once, even at the low price fixed by the Centre. If a higher price is offered, this amount can rise and reach Rs 14,000 crore or more.
"It may be reasonable to stop KG basin operations altogether and divert attention towards gas distribution, where profit is assured. GSPC subsidiaries, GSPC Gas and Gujarat State Petronet Ltd (GSPL), both in the business of gas distribution, make good profit," he added.
GSPC Gas recently acquired Gujarat Gas, a British Gas subsidiary, taking its total gas distribution network from 4.5 million standard cubic metres (MSCM) to eight. Its profit would rise from Rs 125 crore last year to about Rs 300 crore. GSPL earns revenue of Rs 1,500 crore, and its profits are Rs 500 crore. The official said, "It is this viable business model alone which was shown to the investors and helped GSPC to earn bonds from the market worth Rs 3,000 crore at a lower-than-expected rate - Rs 1,000 crore at 3.39% rate of interest for eight years, another Rs 1,000 crore at Rs 9.45% for 10 years, and the rest Rs 1,000 crore at 10.45% for 60 years with a call-back option of 10 years. None of bonds has any government security, yet those who invested were convinced that the business model would be successful, and GSPC will be able to survive its present financial crunch
."