Let us assume we start a company that will produce drinking water for all Indian residents. We know the approximate annual flow of water into all our rivers in the country is about 2,000 cubic km per year. This includes all sources of water flow, including the annual snowfall from the Himalayan glacier flowing into the Ganga-Brahmaputra basin to flows into the Andaman, Nicobar and Lakshadweep islands. The realistically utilisable flows are only about 700 cubic km per year. Of this, let’s say, our company has the technological capabilities to only convert 20 cubic km into drinking water. Let’s then assume that our company has proudly claimed to the nation that there is 2,000 cubic km of water flow every year and we will thus provide drinking water to all Indians in two years at a project cost of Rs.2,000 crore. Using this, we have managed to borrow Rs.2,000 crore from banks.
Five years later, we produce a development plan that now says the utilisable flows are only 700 cubic km per year, of which drinking water can only be 20 cubic km per year. The plan also says that the revised project cost is now Rs.8,500 crore and hence we borrow more money.
Ten years after the original announcement, we now state that we have not produced any drinking water and have borrowed Rs.20,000 crore. But we still have utilisable flows of 700 cubic km per year in water.
The GSPC saga Would anyone in their reasonable mind believe our company? Wouldn’t most right-thinking individuals ask for an investigation into our company? Or should people continue to believe our company’s claims of having utilisable annual water flows of 700 cubic km per year? It may well be a fact that there is 2,000 cubic km of water flow every year. It may well be true that there are utilisable flows of 700 cubic km every year. These can also be certified by ‘experts’. But does that mean our company that has failed to produce a drop of drinking water after a decade and Rs.20,000 crore in loans should still be trusted to provide drinking water to all Indians?
This in a nutshell is the saga of the Gujarat State Petroleum Corporation (GSPC) and its quest for gas in the Krishna Godavari (KG) basin.
Probable and recoverable reserves In two articles earlier (“ >The new KG scam ” published on April 18 and “ >The KG basin scam — Part II ” published on April 29), I had outlined the story of GSPC, the outlandish claims of gas discovery in 2005 by the then Gujarat Chief Minister Narendra Modi, GSPC’s outrageous borrowings from public sector banks, and fishy operations. Yet, Finance Minister Arun Jaitley in the Rajya Sabha and an economist, Rajiv Kumar, in The Hindu (“ >Smelling a scam — supposedly ”, May 9) want us to believe that the company is genuine in its quest for gas in the KG basin. Their entire arguments rest on the premise that the company still has gas reserves, similar to our company in the example claiming we still have 700 cubic km of utilisable water. Mr. Jaitley and Mr. Kumar quote the company’s claims of reserves of 14 trillion cubic feet of gas, but fail to qualify it by saying these are “probable” reserves, not recoverable. The table above shows a history of what GSPC has claimed in terms of its reserves, production date and exploration costs of extracting gas from the KG basin, over a decade. Contrast that with the actual proven reserves from producing blocks and the actual amount in borrowing. Notice how GSPC and its protagonists have consistently misled people while the company goes on a borrowing spree. This should put to rest all attempts to defend GSPC with its estimates of reserves, be it probable, possible, plausible or whatever.
Mr. Jaitley and Mr. Kumar also argue that GSPC has been able to meet its loan obligations and is hence solvent. This is perhaps true but not evident from GSPC’s annual reports. As of 2014-2015, its loans outstanding were Rs.19,716 crore at an average interest rate of nearly 10 per cent. This means the interest costs alone on these loans are nearly Rs.2,000 crore. GSPC’s entire cash flow (not profits which is paltry) generated from its operations is only Rs.682 crore. Its share of dividends and pre-tax profit from all its subsidiaries put together was only Rs.537 crore. So, how could GSPC have serviced all its debt obligations through internal income? Part of the answer lies in how GSPC refinanced Rs.3,000 crore of its loans from State Bank of India and borrowed another Rs.3,500 crore in foreign currency from SBI, Bank of Baroda, and others to pay interest on earlier loans. Borrowing heavily and refinancing to pay interest on past loans doesn’t sound like a prudent business model as GSPC’s defendants claim, does it?
Inability to extract gas Then Mr. Kumar claims that the company is not only solvent but is actually attractive since it can earn Rs.43,000 crore in income through production of KG basin gas. Unfortunately for him, just as he wrote his article came news that GSPC is in talks to sell its KG block for a fraction of that amount, to Oil and Natural Gas Corporation Limited, another public sector undertaking controlled by the Ministry of Petroleum. Lest this be dismissed as media speculation, even the 2015 Comptroller and Auditor General report states that the management of GSPC have acknowledged their inability to extract gas from KG basin and are looking for “strategic” options such as sale to a third party. It is common industry knowledge that GSPC has been looking to palm off its KG block “asset” to any willing buyer but hasn’t been able to do so yet. If GSPC is indeed very solvent with a bright and rosy future, why would it want to sell the KG block now at a fraction of its potential revenues?
The adventurism of GSPC was not confined to India. The company acquired 11 exploration blocks in Australia, Indonesia, Egypt and Yemen in just five years between 2006 and 2011. Guess what, it surrendered 10 of these 11 blocks by 2015 and wrote off nearly Rs.2,000 crore in exploration costs — Rs.2,000 crore of Indian savers’ money in public sector banks. The facts are simple and straightforward, no matter how its defendants want to spin them.
GSPC made outlandish claims of gas discovery only to be able to borrow outrageous sums of money. After 11 years and Rs.20,000 crore in loans, there has been no gas output from the KG basin. GSPC’s borrowings are either a silent non-performing asset or it remains artificially solvent only through additional borrowings and bank negotiations. It has made reckless acquisitions, handed contracts to dubious vendors, and has consistently misled people. GSPC is now staring at the barrel and looking to palm this off to another PSU — ONGC. It suffices to say, the time is up for GSPC and its masterminds. It is now time for an independent judicial inquiry into the trail of the Rs.20,000 crore borrowed from banks and efforts to recover that.
Jairam Ramesh is a Congress Rajya Sabha MP.
