After facing further delays in the commencement of the Gujarat State Petroleum Corp. (GSPC) commercial production, the firm is now turning to the Gujarat government-owned enterprises, some of them listed on the bourses, to fund its exploration costs in the Krishna-Godavari (KG) basin. This project could impact power projects and industries in many states.
GSPC, a state government undertaking, had earlier planned to rope in a global strategic partner to raise funds, in return for up to 30% equity in a new company that would be floated in the form of a special purpose vehicle for gas exploration. GSPC also explored the idea of an initial public offer (IPO) to fund its projects, including exploration activity in the basin.
“The process of going public will take time. The operations at KG have reached a critical technical phase and GSPC needs to raise money real fast,” says a company official who did not wish to be named.
People familiar with the plans said GSPC was looking to appoint SBI Caps and UBS as merchant bankers to oversee the fund-raising. The state-owned companies funding the project will be allotted convertible debentures. Convertible debentures are bonds that are converted into equity after a predetermined time.
“Many of the state undertakings would not find it difficult to fund GSPC’s needs. Debentures give them the opportunity to pick up equity in this exploration ensuring a regular supply of natural gas at a competitive rate. It could also help increase value base of investing companies in the long-term,” says Anagram Securities director V.K. Sharma.
Many of these companies that may invest in the project need natural gas for their production process. With the deadline for commercial production already delayed by 12 months to the end of 2009, GSPC is under pressure to deliver fast. Any further delay in raising money could affect the operations of many industry and power projects in Gujarat, Andhra Pradesh, Tamil Nadu, Maharashtra and Rajasthan, where this gas is to be sold.
The companies that could be roped in include Gujarat State Fertilisers Corp., Gujarat Narmada Valley Fertilizers Co. Ltd,Gujarat Alkalies and Chemicals Ltd, Gujarat Industries Power Corp Ltd, Gujarat Industries Development Corp. and Gujarat Mineral Development Corp.
“So far, we have not yet received any written communiqué from either GSPC or the state government,” said the managing director of one of the state-owned companies. However, he saw no problems with such firms picking up equity in the venture. He said may firms have surplus reserves which may be invested in developing other government-owned companies.
GSPC’s subsidiary, Gujarat State Petronet Ltd, is already in the process of putting in place the pipeline infrastructure in Gujarat and other states to provide gas transportation access to GSPC. This puts more pressure on GSPC, as it could lose out on the market with Reliance Industries Ltd’s entry and the presence of liquefied natural gas suppliers such as Petronet LNG Ltd and Hazira LNG Ltd.
India, currently, produces 80 million standard cubic metres per day (mmscmd) of gas, compared with a demand of 160mmscmd. RIL has already announced its plans to transport 120mmscmd of gas through its cross-country pipeline from KG basin to Gujarat, beginning March 2009. GSPC had announced its biggest ever discovery of 20 trillion cubic feet (tcf) of natural gas from this field in mid-2005.
The Directorate General of Hydrocarbons (DGH), however, has put the oil reserves figure at 3.6tcf—less than 20% of what GSPC claimed.
Instead of challenging the GSPC claim, DGH has asked GSPC to drill more wells to prove its claim. GSPC has drilled seven wells so far and tested five of them. It also plans to drill five more wells to get a final seal on its claim.
GSPC hopes to submit the final development plan for its KG basin by December 2007. The commercial production will begin 30 months after the submission and clearance of the development plan. GSPC had invited bids from international players for technology and finance. Of the 11 potential partners, BG Plc. of the UK, BP, Cheveron of the US and ENI of Italy were short-listed. But GSPC was not happy with the price offered and decided to go the IPO route before its current option of getting local partners.