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'Gujarat's gas find is a jackpot'

By Sheela Bhatt in New Delhi
July 01, 2005 04:59 IST
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On 25, September 2002, two terrorists had attacked Akshardham temple in Gandhinagar, Gujarat situated a few miles away from the residence of Chief Minister Narendra Modi.

Six months after the bloody riots where largely Muslims were massacred, the attack on a popular Hindu temple by the terrorists were shocking.

While handling the huge socio-political crisis, Modi kept his cool because he was handling a business challenge also.

The petroleum ministry asked him to increase the net worth of Gujarat State Petroleum Corporation in 48 hours flat to avoid disqualification while bidding for an offshore energy exploration contract in the Krishna-Godavari basin in the Bay of Bengal.

If Modi's team had failed to comply with the deadline set by the Centre, Gujarat would have lost the opportunity to get the bid.

Modi and his colleagues didn't want to miss that opportunity, which had great business potential.

So, amidst the Akshardham crisis, they increased the net worth of a then little known company, GSPC, by Rs 300 crores.

"It was all done in flat 48 hours when Akshardham crisis was on," says Saurabh Patel, Minister of State for Energy and Petrochemicals.

Patel explains that the competition to get the contract was stiff because they were competing with the five worthy competitors including giants like Oil and Natural Gas Corporation and Reliance.

After a lot of manipulations and aggressive bidding by all, the central government had awarded the "KG-OSN/2001.03" basin, now known as Deendayal field, to a consortium comprising Gujarat State Petroleum Corporation, GeoGlobal Resources of Canada and Jubilant Enpro of Noida.

GSPC, the operator of the KG Block had a contract with Saipem SPA, part of ENI, Italy for the drilling rig named -- Saipem Perro Negro 3 - to drill an initial 4 well exploratory drilling program on the KG Block.

Once the drilling started, the first two wells didn't yield oil or gas. But according to sources in Gandhinagar, the Italian experts, who were advising the Modi government, insisted that mission should not be abandoned.

Rest is history, as now, Modi claims.

On June 26, Modi announced that a state-run corporation had discovered the "country's largest reserve of natural gas in the Krishna-Godavari basin."

Petroleum minister Mani Shanker Aiyar and many others have been saying since long that the KG basin and area around it in Bay of Bengal is the North sea of South Asia.

The surprise elements in Modi's announcements were not the area where the huge reserves of natural gas have been found or the find itself but the claims of the quantity of gas discovered.

Also, the huge find was "discovered' by the low-profile state-run GSPC was certainly not amusing.

"The initial testing results indicate estimated reserves of 20 trillion cubic feet of natural gas with a value of about Rs.2 trillion or $50 billion," Modi told reporters in New Delhi. He called it a historic moment for India's hydrocarbon sector and a great leap forward for Gujarat.

But as anything linked Modi cannot be above board many questions, doubts and claims and counter-claims have arisen.

Is it a fluke? Is it GSPC blind game that has turned into a jackpot?

Patel denies it.

He says, "The Modi government has the habit of going into details. We were facing severe power crisis. Power in Gujarat needed to be cheaper for progress to be faster than other states. Then the government noticed that water in Gujarat is scant. Coal had to be brought from around 1000 km away. It is costly and the quality of the coal is also bad. We had to turn to other sources for energy. Lignite is available in Kutch. We are exploring it already. But after giving it a lot of thought, we settled for gas. We decided to turn Gujarat's economy into the Gas-based economy."

Gujarat had, albeit a bit weak, the infrastructure to get into it.

American-educated Patel claims that, "In Gujarat, we now have the experience and expertise to deal with the LNG business and understand price mechanism of gas and oil."

He says that all over India, industry and business profit margins are low. "Unless manufacturers save power, businesses can't survive. Gas being cheaper and relatively pollution free has made this possible," he said.

GSPC has suddenly become a national sensation thanks to Modi's dramatic announcement regarding the gas find but GSPC is not a new company. When started in 1979 it was known as Gujarat State Petrochemicals Corporation.

In 1992, when the Congress government in New Delhi led by Narsimha Rao opened up the hydrocarbon sector for private participation, the dormant and unattractive GSPC got a fillip. The government decided to make it into a nodal agency for exploration and exploitation of oil and gas in Gujarat. Simultaneously it also renovated its related companies to create solid infrastructure within the state to distribute and sell natural gas.

Today, GSPC is India's only state -owned company in the Oil and Gas Exploration & Production business. The government of Gujarat holds approximately 95% equity stake in the company.

GSPC seized the opportunity presented by the upstream hydrocarbon sector when the Indian government liberalised its oil exploration policy further.

GSPC was awarded five small sized oil and gas fields and in association with the Canadian operator, Niko Resources Ltd., by the end of 1994 it started production of oil and gas.

The GSPC claims that judicious drilling of new wells in its Hazira gas field led to the discovery of new and extensive gas horizons, which were not exposed earlier.

The Gujarat government's search for energy to sustain around 10% industrial growth led them to bid on more contracts after the moderate success of Hazira.

The energy-starved state achieved high safety levels and deployed advanced technology.

The real break the company got was in August 2002 when it applied for the area for exploration in KG basin. It was awarded the contract for 1850 Square km in February 2003.

Money was pumped in only after the 3-D seismic data of KG basin was shown to many international experts based in Canada, US and Europe.

Rs.50 crore was spent to assess in acquiring and assessing the seismic data by Gujarat government.

Modi, who was looking for the big-time economic successes to boost his political image tarred by the communal riots, displayed dynamism and his team was methodical and modern in approach.

Modi employed the country's best talent too. To avoid bureaucratic limitations he hired a few former employees and experienced technocrats of Oil India and other oil companies, giving them lucrative contracts.

Apart from producing oil & gas from its own fields and bidding aggressively for more exploration blocks, GSPC has also ventured into the purchase of LNG. It has also emerged as a major aggregator of LNG after the signing of agreements for purchase of LNG from gas producing companies like GAIL, IOC and Bharat Petroleum Corporation Limited.

This apart, it will also facilitate the opening of CNG stations in the state of Gujarat on a very large scale.

GSPC is one of the rare organisations ran by Sarkari babus yet paperless. It has set up a data interpretation centre that has state-of-the-art software packages that can provide data management and IT services to various exploration & production companies.

About the allegations that the figures of the find were hyped, Patel says, "I would like to believe what Avinash Chandra, former director general of Hydrocarbons says. He claims that the Deendayal field would be bigger than what Modi is claiming."

Patel says, "We have done things professionally. We acquired advise at a price and took a decision. We have hit the jackpot."
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Sheela Bhatt in New Delhi