ONGC not to take over GSPC debt; deal to retire only 40% of PSU's loan

The Gujarat government-owned company has been under the lens of the CAG for incurring this huge debt

Oil and National Gas Corporation’s (ONGC’s) buying 80% stake in the flagship asset of Gujarat State Petroleum Corporation (GSPC) will be without a debt takeover. 
 

GSPC has Rs 20,038 crore of loans (from about 15 banks) on its books on account of the Deendayal Upadhyaya block’s discovery in the Krishna-Godavari basin. The Gujarat government-owned company has been under the lens of the Comptroller and Auditor General of India (CAG) for incurring this huge debt. With this $1.2-billion (Rs 8,160 crore) deal, GSPC will not be able to retire even half its debt.

Says D K Sarraf, chairman and managing director of ONGC, “We are taking over the block, not the debt. It will be an unencumbered asset.”

In an interview after the deal announcement, J N Singh, managing director of GSPC, had said the company “didn’t have that deep a pocket to go ahead with the K-G basin. It is, therefore, in the national interest that we are going ahead with ONGC, which is best suited for such exploration work.”

Sarraf dismissed suggestions that the deal was to bail out GSPC. “Just because a company is in a desperate situation does not mean it does not make commercial sense for another company to buy the asset,” he said.

On December 23, the ONGC board decided to buy the entire 80% stake in GSPC’s KG-OSN-2001/3 block in the K-G basin offshore. Canada's GeoGlobal Resources and Jubilant Energy, part of the Jubilant Bhartia Group, have the remaining 10% each in the block, auctioned in the third round of bidding under the New Exploration and Licensing Policy.

The stake, including operator rights, has come to ONGC for $995.26 million. It will pay $200 mn to GSPC for six discoveries other than this field, to be adjusted later upon valuation of these discoveries.

The valuation, based on an agreed mechanism, will be worked out once field development plans are approved by an oversight committee set up under the production sharing contract and the government’s Director General of Hydrocarbons (DGH). Sarraf said the transaction would be complete by March 31.

The block’s Deendayal West field has started test production, along with wellhead platforms, onshore gas terminals and an export pipeline for transporting treated wellfluid from the process platform to onshore terminal, etc.

Finance Minister Arun Jaitley had last year told Parliament that international consultant Gafine Cline Associates had certified that the block holds 14.4 trillion cubic ft of gas reserves. Prime Minister Narendra Modi, as chief minister of Gujarat in 2005, had put the figure at 21 tcf. 

DGH has certified Deendayal West to hold 1.8 tcf of reserves. By Jaitley’s admission, public sector banks lent the company money based on the 21 tcf estimate.

Delayed production and confusion about how much the blocks holds has been a worry for the lenders. According to the CAG, the company had spent Rs 14,642 crore by end- March 2015 for development of the area. 

An unencumbered asset

GSPC has Rs 20,038 cr on its books purely on account of Deendayal Upadhyaya discovery in the K-G basin

The Gujarat govt-owned firm has been under the lens of CAG India for incurring huge debt in developing the block

ONGC chief Sarraf dismissed suggestions that the deal was to bail out GSPC

Sarraf says the transaction will be completed by March 31