1. All that gas

All that gas

It is unwise on the part of Jairam Ramesh and Anand Sharma to choose to attack an efficient PSE and on patently unfounded grounds

By: | Published: April 27, 2016 5:34 AM

reflect-l-IEThe Congress party is desperate to stick some corruption scandal on the Prime Minister, thereby eroding his credibility and capacity to govern. This is the age-old ‘crab tactic’ in Indian politics, of pulling everyone down to one’s low level. Chandra Shekhar, the former Prime Minister, was apparently fond of asserting that all politicians were equally steeped in corruption (is hamam mein sab nange hain). This ensured that all were tarred by the same black brush, and absolved of all accountability and made equally culpable. I did not expect such cynical behaviour from people I have known rather well, but clearly not well enough!

This seems to be the only explicable motive in recent attempts by senior Congress party stalwarts like Jairam Ramesh and Anand Sharma (RS), who respectively wrote a long oped article (The Hindu, April 18) and addressed a press conference (April 6) on the so-called KG Basin scam. This was allegedly committed by the Gujarat State Petroleum Corporation (GSPC) over more than 12 long years (2003 to 2015). The Congress leadership is reportedly also seeking to move the Supreme Court through a PIL on the issue and has demanded a joint business committee (JBC) of Parliament to look into the matter.

These moves clearly do not take into cognisance the fact that the report on GSPC by the Comptroller and Auditor General (CAG) has already been placed before the State Legislature by the Gujarat government on March 31, 2016. There is virtually nothing for a JBC to investigate. Further, 19 observations relating to GSPC, in an earlier CAG report, were fully settled. GSPC is a reputed and well-functioning Gujarat state PSE, with revenues of R11,036 crore in 2015, net worth of R7,432 crore and an EBIDTA of nearly R250 crore. One wonders why smart operators like Ramesh have chosen to target such a well-functioning PSE rather than others in civil aviation and hotel sectors, which have racked up gigantic losses and accumulated debts more than three times the total debt of GSPC. And why at this time? After all, GSPC secured its regulatory approvals from central government agencies and loans from public sector banks (PSBs) during the UPA’s 10-year rule in Delhi.

The central allegation is that GSPC has borrowed and invested R19,824 crore in exploring and preparing field development plans in the KG Basin without any gas having been produced so far. This is a baseless allegation. According to a report on April 7 in the Hindu Business Line, GSPC produced 1.4 MMSCMD (million metric standard cubic metres per day) of natural gas worth R1,300 crore ($200 million) from its Deen Dayal West (DDW) field, with prospects of much greater revenue flows in the coming period. The Directorate General of Hydrocarbons (DGH) has certified that DDW, with an area of about 17 sq km, has 3 trillion cubic feet (TCF) of gas in place, with probable reserves of 1.61 TCF. These were certified by DGH in December 2008 and approved by the ministry of petroleum and natural gas in 2009, when the UPA was in office and RS were influential ministers. DDW will sustain production for the next 20-30 years and generate more than sufficient revenues to pay back the investments made.

The 13 PSBs that gave loans to GSPC had assured themselves of the viability of gas production with the government of India’s approved price of $6.61 per BTU (British Thermal Unit). Therefore, to wildly assert that all the money invested has been wasted and ‘vapourised’—as RS would have us believe—is simply that much balderdash. It is worth noting that despite the relentless pressure from RBI, PSBs have not classified their advances to GSPC as non-performing assets, which they surely would have done if there was no gas forthcoming, as RS insinuate.

RS surely know that exploration and production in offshore fields at depths of nearly 5 km is necessarily a long gestation project. Can they, in all honesty, point to other offshore oil-producing companies which have taken significantly shorter time from exploration to actually producing the gas?

It is somewhat disingenuous for anyone to expect that all exploration blocks will be productive. Oil and gas exploration is necessarily a risky business. Therefore, it is quite normal for GSPC to have returned 37 (not 45) of the 64 blocks, once detailed drilling had shown these to be unproductive. This, admittedly, also involved a write-off of exploration costs of R2,992 crore. This is indeed common practice. ONGC and OIL have reportedly written-off exploration costs of R48,000 crore and R1,800 crore, respectively, and even British Petroleum (BP) wrote-off $8 billion. To paint this surrendering of exploration blocks and related write-offs as a scam, as RS do, is tantamount to being scurrilous.

The demand for natural gas in the country is estimated to increase at 5-6% per annum and rise from 465 MMSCMD at present to 606 MMSCMD by 2021-22. Unfortunately, in contrast to this rising demand trend, our domestic production has been declining over the last five years—from 140 MMSCMD in 2010-11 to 90 MMSCMD in 2014-15. Worse still, according to the Petroleum Planning & Analysis Cell (PPAC), gas discoveries have also been declining since 2011-12. Consequently, import dependence has steadily gone up to more than 80%. However, the UPA government simply did not bother to do anything about this growing vulnerability in the country’s energy security. It is, therefore, doubly mischievous for RS to scare away enterprising PSEs like GSPC, who have ventured to risk their reputation and net worth to try and increase the share of domestically-produced energy.

Some allegations are also made on GSPC’s choice of consortium and joint venture partners, and that these were selected without a proper tendering process and without due diligence. According to the information I have seen, the first consortium with Tuff Drilling et al was chosen because of its L-1 status, but then cancelled because of non-performance and its bank guarantee of R15.5 crore duly encashed. Does this smell of a scam? The consortium with GeoGlobal Resources and Jubilant has been formed on the basis of a Carried Interest Agreement, under which the share of costs—to be borne by production partners—will be deducted from their share of revenues received from sale of KG gas, of which some has already started coming through from the DDW field, as mentioned earlier. To insinuate, as Ramesh does, that GeoGlobal Resources has been paid monies that are unwarranted is truly mischievous. Jubilant has paid its share and any outstanding amounts can again be docked from their share of future revenues.

To try and implicate the Prime Minister for decisions taken by a PSE with a fully empowered and independent Board is akin to holding Manmohan Singh responsible for the complete lack of utilisation of the LNG terminal at Kochi that he had inaugurated. GSPC is one of the more successful PSEs in the country, which has been single handedly responsible for making Gujarat a leader in utilising natural gas—a relatively clean fuel—for domestic and commercial energy use. GSPC is also a conduit for front-line hydrofracking (hydraulic fracturing) technology that will be increasingly used for producing fossil fuels from the more difficult fields that have to be operated under very high pressures and high temperatures. It is, to say the least, rather unwise on the part of RS to choose to attack a relatively more efficient PSE and on patently unfounded grounds. Better sense must prevail if the Congress leadership has to win back people’s trust.

The author is founder director, Pahle India Foundation, and senior fellow, Centre for Policy Research

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

  1. R
    Apr 27, 2016 at 7:31 am
    A very Factual article on the on going issue
    1. R
      May 3, 2016 at 2:33 am
      Its not factual. Look at the argument 1. PSB has not clified loan as non performing means they must be good. The underlying umption is PSB has no polictical interference and always takes prompt action.. This one clearly contradicted with Mallya case besides PM is personally announced gas find and closely connected to Vikas Yadav of tuff drilling. Its capital is just 30cr. 2. He just talks about GSPC is professionally managed PSU with contradictory statement like getting risky business without core competency and maniting viability study. 3. Playing with facts , there is no commercial production and 20 TCF came to 1.6 TCF suppose to be online in 2007. 4. Modiji crows goverment has no business to be in business. Here its not in business as admited by author risky business putting tax payers money on line. I would suggest gracefully accept mistake and ppl will forgive. I dont see how its dfferent than Mallya case. All business think if we keep doing indfinately one day result will come. But TIme is over weelll above 10 yrs.

      Go to Top