GSPC to merge distribution arm with Gujarat Gas

This would help GSPC create India's largest city gas distribution company

Five months after it acquired 65% stake in Gujarat Gas Company Ltd (GGCL), GSPC or Gujarat State Petroleum Corporation is planning to merge its city gas distribution entity, GSPC Gas Company Ltd with Gujarat Gas Corporation Limited (GGCL).

Persons close to the development said this would not only help GSPC create India's largest city gas distribution company but also allow it to transfer the loans it took to acquire GGCL on its books as the company is listed.

"Merging GSPC Gas with Gujarat Gas makes sense for the company as Gujarat Gas is listed. Besides, given the companies are into city gas distribution, the synergy works well," said a senior executive from GSPC.

While top management of GSPC remained tight-lipped about the matter, a senior GSPC official informed that the decision on the merger with GGCL will be taken only after the completion of open offer.

“The open offer is in process. Let it get over, and then we can talk about a possibile merger. The final decision will be taken at the GSPC Group level,” said a senior GSPC official on the condition of anonymity.

GSPC had in October 2012, acquired 65.12% in Gujarat Gas Company Ltd (GGCL) for Rs 2,464 crore from British Gas (BG) Group. BG’s shareholding was acquired by Gujarat Distribution Networks Ltd (GDNL), in which the GSPC Group holds 100% stake.

GSPC Group is one of the largest gas trading companies of the country. The Group has a significant presence in the gas transmission and gas distribution businesses. Government of Gujarat along with its public sector undertakings are majority shareholders in the Group.

Gujarat State Petronet Ltd (GSPL), which is a gas transmission and infrastructure subsidiary of GSPC Group, has a pipeline network of about 1960 kilometers with about 350 kms of pipeline under construction. While, Guajrat Gas has around 4000 kilometers of gas pipeline network in the Surat and Bharuch districts.

"Post merger, it will be one of the largest city gas distribution players. No other city gas players including Indraprastha Gas, Adani Gas or Mahanagar gas can come close to the new entity," the senior official added.

GSPC's gas business is bigger than that of Gujarat Gas. GSPC Gas has a daily gas sales volume of around 4.3 million metric standard cubic meters per day (MMSCMD), while Gujarat Gas has around daily gas sales over 3 mscmd.

While Indraprastha Gas sells around 3.5 mscmd, Adani and Mahanagar Gas sell, 800,000 cubic metres per day and 2.2 mscmd, respectively.

GSPC Gas also supplies compressed natural gas (CNG) through over 150 CNG stations across the state, while Gujarat Gas has 46 stations located mainly in Surat and Ankleshwar.

In a note on GGCL last month, analyst Priyank Chandra of Dolat Capita said: "GGCL is not keen on unrelated geographic expansion but exploring its existing territory in Gujarat better. GGCL has got the CGD license in its existing areas of operation. These regions offer significant demand and optimum utilisation of the existing pipeline network. The exclusivity in its existing areas of operation will enable GGCL to become the sole supplier of industrial segment.

GGCL has started expansion in areas - Bardoli in Surat and Jambusar in Bharuch. These two areas offer significant industrial potential.

GSPC’s gas distribution arm GSPC Gas provides gas to over 409,000 users including domestic households, commercial, non-commercial and industrial customers. Gujarat Gas caters to about 400,000 industrial, retail and domestic consumers in Surat, Ankleshwar and Bharuch.