Originally Published 2016-05-07 10:13:57 Published on May 07, 2016
GSPC, red herring the Congress has found

Two years ago, Narendra Modi left Gujarat and made Delhi his home. While he has moved on and outgrown his former job as Chief Minister in Gandhinagar, his opponents in the Congress are clearly still obsessing with Gujarat and Modi’s record there. Evidence of this has come in the past few days from the manner in which the Congress has sought to play up the so-called Gujarat State Petroleum Corporation ‘scandal’.

The issue has been raised in Parliament. Jairam Ramesh, Congress MP and former Union Minister, has written a series of articles on the subject. On closer examination, it appears that the accusations made, and the assumptions and creative interpretations Ramesh and his colleagues have resorted to, are completely incorrect. Far from a scandal, GSPC, a public sector company promoted and owned by the Gujarat Government, needs to be congratulated for striving to strengthen India’s energy security.

GSPC has a 40-year history. Over the decades, it has helped develop a 2,500 km gas transmission pipeline, covering 19 of the State’s 33 districts. Piped natural gas for domestic users (GSPC has one million customers) and gas for industrial use and for power plants are part of its mandate. It is thanks to GSPC that Gujarat has 241 CNG stations, making up a quarter of all such stations in India.

This is a rich legacy and about 15 years ago, GSPC sought to leverage its experience and understanding as a gas marketing and distribution company, take to backward integration and go into exploration in the Krishna Godavari Basin. In 2005, it got lucky. Modi, the then Chief Minister of Gujarat, announced GSPC had discovered what it was felt could turn out to be India’s biggest gas reserves off the eastern coast, touching probably “20 trillion cubic feet”.

This is where the story starts. In the intervening decade, after the discovery, effort and investment has gone into studying financial and technical viability of commercially exploiting that discovery and recovering and producing the gas. The Congress has now alleged that the announcement of 2005 was a hoax, no gas was actually found, and Rs 20,000 crore has been borrowed and spent to camouflage this operation. It was swindled, the Congress has claimed, and Ramesh has gone to town crying “scam”.

What are the facts? First, Ramesh says there is no gas at all. This is absolute bunk. The ‘gas in place’ (GIP) in the block GSPC worked in is certified to be 14.4 TCF at ‘best estimates’ (established) and 23 TCF at ‘high estimates’ (possible). These numbers have been certified by Gaffney, Cline and Associates, a Houston-based consultancy with 50 years of experience in the energy business. For reasons of technical viability, not all the GIP can be recovered. This is true for any gas discovery anywhere, and not unique to the KG Basin. GSPC believes that at a conservative assessment, 34 per cent of the minimum 14.4 TCF is recoverable. The value, at today’s prices, would be four billion dollars.

Developing a gas block can take decades. In the first phase, GSPC is working in a 17 sq km area of its block, called DeenDayal West. Four wells in the DDW zone have been drilled so far. In August 2014, production began in the first three wells and gas from there is being supplied to fertiliser plants in Andhra Pradesh and Gujarat. So far, 8.5 BCF (billion cubic feet) of gas has been produced. The fourth well, said to be the most promising yet, will go into production in a few weeks, “certainly this summer”, according to a GSPC official. To give an idea of the potential of GSPC’s work, that fourth well in DDW alone is expected to produce over 30-35 MMSCFD (million standard cubic feet of gas per day). One MMSCF is the equivalent of 172 barrels of crude oil. So much for the Congress’s ‘zero gas’ theory.

Second, the Congress has picked on some of the partner companies and contractors GSPC has worked with and alleged cronyism. Does it have a point here? For instance, GeoGlobal Resources, a two-man company incorporated in the Caribbean Islands, was GSPC’s exploration partner. Frankly, this is hardly a mystery. Initial exploration requires little expertise other than a high-quality geologist and geophysicist (G&G, to use the shorthand). These are usually very skilled, very well-paid individual professionals who team up to run small partnership firms. GeoGlobal is one such. Ramesh may not have realised GeoGlobal Resources also partners Oil India Limited, owned by the Government of India.

Further, the Congress has smelled a plot in the awarding of the platform rig contract to Tuff Drilling, saying the latter had insufficient experience. This is a half-truth. Tuff Drilling led a consortium that also comprised two American partners — BHL International, a construction and engineering firm that has enormous experience in design, fabrication and upkeep of gas and oil field infrastructure; and Spartan Offshore Drilling, a well-regarded offshore rig provider.

This consortium conformed to all technical and financial criteria. Its bid was the lowest, meeting the L1 standard that became impossible for GSPC to ignore (unless Ramesh is suggesting the L1 principle should have been junked). Later, when the consortium failed to deliver on time, its contact was cancelled and awarded to the L2 bidder at the L1 price. The work is now complete. There was no loss of money to GSPC. The bank guarantee of Rs15.50 crore of Tuff Drilling was encashed by GSPC.

Incidentally, that point about forfeiture of bank guarantee by a company that did not meet its obligations is being made by the Congress in its defence in the AgustaWestland helicopter case. There, encashing a bank guarantee by the UPA Government is presented as a punitive action; when GSPC does it, it’s conveniently ignored by the Congress.

Finally, the Congress has made much of the fact that GSPC surrendered 45 blocks, including 11 in foreign countries such as Egypt and Yemen, and wrote off a loss of Rs2,992 crore between 2011 and 2015. In seeing a conspiracy here, the Congress is not being mindful of either geology or geopolitics. Oil and gas exploration is a decidedly risky endeavour. Chances of success are low, though returns from success can be high. In Egypt and Yemen, GSPC gave up prized blocks due to local turbulence, triggered by the Arab Spring and its aftermath.

Yet, GSPC is not alone. True, it had exploration write offs of close to Rs3,000 crore < class="aBn" tabindex="0" data-term="goog_1871740816">< class="aQJ">in four years (2011-15). As it happens, Oil India similarly wrote off Rs2,500 crore between 2004-05 and 2014-15, and ONGC Rs53,000 crore in the same period. The Congress-led UPA Government was in power in that decade. To take Ramesh’s argument to its logical absurdity, are we to conclude that the leadership of the Congress and UPA was responsible for those losses?

This commentary originally appeared in The Pioneer.

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