Gujarat State Petroleum Corporation's loss-making spree continues

The Gujarat State Petroleum Corporation may have gotten rid of the albatross around its neck, its KG block project which cost it thousands of crores of rupees, but its financial woes are far from over. The Gujarat government-owned energy major reported a loss for the third straight year on account of huge write-offs.

GSPC's latest annual report shows that the company reported a loss of Rs1,564.64 crore for the financial year 2017-18. The loss declined by more than 90 per cent over the previous year when GSPC booked loss of Rs16,303 crore due to impairment of Rs14,923 crore cost incurred for the ambitious KG basin project, which it later sold to ONGC at a huge loss.

The impairment figure for 2017-18 stood at Rs221.6 crore, even as it wrote off exploration cost of Rs491.33 crore. Revenue rose by more than Rs1,000 crore to Rs10,870 crore.

The annual report shows that GSPC's finance cost declined from Rs1,929.69 crore in 2016-17 to Rs1,674.81 crore in 2017-18.

"The lower finance cost was because of reduction in debt level," said a senior official.

After spending close to Rs23,000 crore on the KG basin project over the years, GSPC sold its 80 per cent stake in it to ONGC for $1.19 billion of Rs7,738 crore in March 2017. In March last year, GSPC sold its 28.40 per cent stake in Gujarat Gas to subsidiary GSPL for Rs3,200 crore. Funds received from the two transactions helped GSPC pare its debt from Rs24,500 crore to Rs13,500 crore, alarmingly high for a company of its size.

However, as a part of its debt realignment plan, aimed to address issues associated with high leveraging and negative net-worth, GSPC brought down its debt level to Rs7,500 crore by transferring Rs6,000 crore worth of non-convertible debentures to Gujarat State Investment Limited (GSIL), the holding company of the state government in various listed entities such as GNFC, GSFC, and GACL, in the current year.

A senior official said that GSIL will service the NCDs, which are slated to mature over the next few years, with the support of the state government.

"We have brought down GSPC's debt to Rs7,500 crore. The annual interest cost would be Rs600-650 crore, which is manageable. We aim to further reduce the debt going ahead," GSPC's managing director T Natarajan, said.

GSPC said in its report that leading rating agencies had revised downwards credit rating of its long term loan and NCDs due to weak debt protection metrics and capital structure, negative net-worth, and high debt levels.

GSPC was once considered a blue chip of the Gujarat government. In 2005, Narendra Modi, who was then the state's chief minister, had announced that it had struck gas worth Rs2 lakh crore in KG block. GSPC poured money, almost blindly, in the project, but had little to show, before ONGC came to its rescue. The opposition has alleged that the takeover by ONGC was a bid to cover-up scams.

GSPC reiterated in the report that KG Block has substantial gas reserves, but due to challenges such as high pressure and high temperature, the requisite capital investment had pushed it towards a highly leveraged position.

To make matters worse, while it was struggling in KG block, GSPC also spent heavily in a number of dubious overseas blocks. With nothing to show after several years, it surrendered these projects, writing off hundreds of crores in the process.

GSPC BANKS ON OTHER BUSINESSES

• GSPC is banking on its gas trading, exploration and production in onshore blocks, power projects, and renewable energy business, each of which has the potential for high growth trajectory, to revive its fortunes.
   
• "We are on the right track, and should be able to make a turnaround soon," said a senior GSPC official, requesting anonymity.
   
• GSPC is also banking on its 10 per cent remaining stake in KG block, and upside potential from the valuation of six other discoveries in the block, for which it was paid $200 million towards future consideration by ONGC as a part of the deal.