Financial Daily from THE HINDU group of publications
Monday, May 27, 2002
`GSPC is moving up the value chain'
Mr Jagatheesa Pandian
GANDHINAGAR, May 26
FOR the 46-year-old Mr D. Jagatheesa Pandian, this is his second stint in Gujarat. Having joined the IAS in 1981, he moved out of the State when he took up the assignment as Director, External Commercial Borrowing, in the Union Ministry of Finance.
Three years later, it was the World Bank that beckoned him to Washington DC as Advisor to the Executive Director of IBRD. By the time he came back to India in 2001, armed with a diploma in Global Financial Systems from the Harvard University, it was back to his home cadre once again.
The assignment he landed was that of Managing Director, Gujarat State Petroleum Corporation (GSPC). In an interview to Business Line, Mr Pandian shared his views on the strategy being followed by GSPC and its sister companies Gujarat State Petronet Ltd (GSPL) and Gujarat State Energy Generation Ltd (GSEG) in an endeavour to forge a corporate identity as an integrated energy solutions company. Excerpts:
Is GSPC also falling prey to the diversification syndrome that has undone quite a few state-owned companies in the recent past?
We are fairly focused about where to take GSPC and its group companies GSPL and GSEG. The Government is committed to ensure that it does not get into unrelated areas such as say, port development, just because of a surplus cash portfolio. We will be in the value chain of gas business, right from exploration and production to delivery.
We are convinced that in India, gas is going to be the fuel of tomorrow and Gujarat is turning out to be one of the hottest destinations for the commodity. We will consolidate in the three areas where we already have a presence. But, whatever businesses we enter, the prime parameter would be a healthy bottomline and not any other factor.
GSPL needs to have the trunk route transmission lines in place to carry both natural gas of GSPC and LNG that will be landing in the coming days. Are you planning some exposure in the distribution business and some other areas?
GSPL has the mandate to develop the gas grid in Gujarat and we are currently extending the trunk route line to Ahmedabad by 2003-end at a cost of Rs 350 crore. The whole idea is to facilitate flow of gas from surplus zones to demand areas. We see much potential in taking gas to the cities of Vadodara, Ahmedabad and the industrial belts overlapping them. GSPL may need to get into distribution till such time that the private sector enters this field in a full-fledged manner.
The distribution zones will be cleared over the next one month or so as the State Government will decide between competitive bidding and the MoU route. Ultimately, we need to take gas to the customer and we cannot allow a 600-km transmission line covering Vadodara, Ahmedabad, Mehsana, Rajkot, Godhra and Valsad to languish. Definitely, there is a big money in gas distribution in places such as Ahmedabad where the clientele would be a mixture of domestic, commercial and industrial users.
Simultaneously, we are going to construct a Rs 190-crore transmission line between Hazira and Bharuch to carry gas from the Hazira gas terminal of Shell. This is being done as there is no way that the existing 73-km Hazira-Ankleshwar pipeline, owned and operated by Gujarat Gas Company Ltd (GGCL), can carry some 4 million cu. m., of high pressure gas daily. This makes enormous financial sense as we stand to gain Rs 100 crore each year once the pipeline is commissioned, thus, allowing us to recover our capital expenditure in only two years.
What is the status of the 60 per cent equity sale of GSPL to MNCs and Central PSUs?
GSPL would soon be raising Rs 250 crore by way of sale of 60 per cent of its equity to strategic partners. We are at a fairly advanced stage of discussion with six companies British Gas, Royal Dutch Shell, IOC, GAIL, BPCL and Kribhco all of whom are presently studying the shareholder's draft agreement. We have decided to keep the upper limit of 25 per cent to a single entity, the lower limit being 10 per cent. We hope to wind up the process in a month's time and then wait for the opportune moment for a public issue.
There has been some criticism about the group's entry into the power business. With the State electricity boards (SEB) rarely living up to their payment schedules, how will you justify this move?
In fact, we are going in for a doubling of capacity soon for the 156 MW gas-based power plant at Mora. With GSEG scheduled to commission its combined cycle by the end of June, we will give it another three months or so for the cash flows to commence before going in for the capacity expansion project.
Knowing fully well the difficulty in realising cash accruals from the SEB, we are at an advanced stage of clinching a `distribution management contract' with the Gujarat Electricity Board. We would be more than covering our monthly exposure, which is Rs 30 crore, as revenues from the distribution circle will be to the tune of Rs 150 crore.
For GSPC, the Hazira fields with a proven reserve of 8.3 billion cu.m. has been a windfall, but are you looking to augment your reserves elsewhere? When will the cash really begin to flow from the Hazira field?
The revenue flow has already started as we could post a profit before tax to the tune of Rs 140.77 crore in
2001-02 as against Rs 45.21 crore in the previous year. This came from a turnover of Rs 283.83 crore, which rose by 115 per cent over the Rs 131.47-crore business in 2000-01. Such a happy situation came about as we raised the annual gas production at Hazira from 294 million SCM to 616 million SCM during this period.
We are looking at exploration of at least two more blocks in the immediate future entailing an investment of Rs 40 crore. We are also in the process of setting up the necessary infrastructure to drill and transport oil from three of our fields at Sabarmati, Bhadbut and Hazira. As we could not develop these fields separately, we have been able to establish economies of scale by going in for a cluster approach. We are definitely looking at life after Hazira.
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