Just over a week ago, a Congress delegation met President Pranab Mukherjee to seek a judicial inquiry into an alleged Rs 19,760-crore scam in the public sector Exploration & Production company Gujarat State Petroleum Corporation (GSPC), whose working has been severely criticized in two reports by the Comptroller and Auditor General (CAG) of India. Subsequently, the Congress raised the matter in Parliament. Both Finance Minister Arun Jaitley and Gujarat Energy Minister Saurabh Patel have defended GSPC.
Incorporated in 1979, GSPC began operating in the Cambay basin from 2000, and has been involved in the gas trading business since 2004. In 2002-03, when Narendra Modi took charge as Chief Minister of Gujarat, the company’s turnover was a mere Rs 497 crore. This, however, was to change dramatically in the next couple of years — when the company made international headlines with a find of 20 trillion cubic feet of gas in the Krishna Godavari basin.
‘Historic gas find’
In June 2005, Modi personally made the announcement “about the largest gas discovery in the country”, and officials said GSPC’s “discovery” was worth $ 50 billion. The discovery in the KG-8 well was 6 km from the Yanam-Kakinada coast, and was found after drilling up to 5,061 m, at a temperature of 400 degrees Fahrenheit. Modi had targeted bringing the gas “on-shore” by 2007, and the find was an opportunity for his government to push forward its “development agenda”. In 2008, he announced another discovery of 3 trillion cubic feet from KG-22 well in the KG-OSN-2001/3 block — later renamed Deendayal block — and the theme of a “gas-based economy” figured prominently in successive political campaigns in the state. He announced that KG basin reserves would be more than 20 TCF.
Not long after, the country’s upstream hydrocarbon regulator, Directorate General of Hydrocarbons (DGH) contested GSPC’s claims, and estimated the actual gas in the KG basin to be in the range of 2 tcf. GSPC too realised it would be a challenge to extract the gas from the High Pressure High Temperature (HPHT) zone, and that production wells would have to be drilled to a depth of 5,000 m or more, which would be some of the deepest exploration wells ever to be drilled in Indian territorial waters. As 2012, the initial target for commercial production from the KG basin, approached, the political opposition grew stiffer, and Congress leader Shaktisinh Gohil, Leader of Opposition in the Assembly, questioned the GSPC’s overseas forays.
In a report tabled in the Gujarat Assembly in March 2012, the CAG severely criticised GSPC’s operations in KG block, and said “numerous faulty investment and destructive administrative decisions” had led to a loss of Rs 7,000 crore to the company. It observed that the company’s exploration cost in the KG basin was 12.81 times higher than the estimated cost, and the outcome much lower than claimed. Four years later, CAG published another report (tabled in the Assembly in March 2016) where it rapped GSPC for investing Rs 19,576 crore in KG block. “The company did not properly address the risks associated with cost and technology, which has resulted in uncertainty regarding the future prospects from the block where an investment of around Rs 19,576 crore has been made as on March 2015,” it observed. The auditor noted that the total borrowings of the company had increased by 177% to Rs 19,716 crore in March 2015 from Rs 7,126 crore in March 2011.
According to GSPC officials, the company has drilled a total of 18 exploratory/appraisal wells, some of which were drilled to a depth of 6,000 m in the KG basin. The company has also started trial production in the Deendayal West field. “Trial production has commenced from three wells, while we are exploring the fourth well. These wells are over 5 km in depth and each has its own nature. It takes time. We expect to begin production some time soon,” said J N Singh, managing director of GSPC Group.