Top Gujarat PSU "forfeits" its claim of going multinational, withdraws from Egyptian misadventure

GSPC headquarters in Gandhinagar

In its first major decision to take the former state blue-chip public sector undertaking (PSU) out of the red, the Gujarat State Petroleum Corporation (GSPC) has taken a formal decision to withdraw from its most important overseas adventure – Egypt. A well-placed source in the Gujarat government has told Counterview that the GSPC board took the decision to withdraw from Egypt after dilly-dallying on the matter for above a year. “The board met recently. It decided to withdraw following a discussion, in which GSPC managing-director Tapan Ray insisted that withdrawal was essential to bring the GSPC out of the red and also in view of unstable political atmosphere in Egypt”, the source said.
The decision to withdraw followed a recent communication by the Petroleum and Natural Gas Ministry, Government of India, to the Ministry of External Affairs that the Indian consortium led by the GSPC, with Hindustan Petroleum Corporation Limited (HPCL) and Oil India Limited (OIL) as junior partners, had “unanimously” decided not to sign the concessional agreement for two of the offshore oil exploration blocks of South Quseir and South Sinai, located in the Gulf of Suez and Red Sea in Egypt. In all, GSPC had taken five blocks in Egypt in an “aggressive” bid, and managed to rope in two Central PSUs as junior partners.
As for other overseas operations – in Australia, Yemen and Indonesia – the source said, these are “not important and do not involve much funds.” However the source did not rule out that in due course the GSPC may withdraw from these countries, thereby forfeiting its “self-proclaimed” and “loud” claim of becoming the first state-based PSU in India to go multinational. “The most important of foreign operations was for oil-and-gas exploration in Egypt. It had become unviable from the financial point of view to continue with it”, the source pointed out.
Gujarat government sent at least two delegations, the first one in 2011-end and then in mid-2012, to Egypt to assess and reassess if the Egyptian operation was viable. Finding that the period for exploration was ending in March 2012, then Gujarat chief secretary AK Joti, as GSPC chairman, went to Cairo in 2011-end to assess the situation on the ground. It found that the operation should continue, and made a formal request to the Egyptian government to give extension.
The extension was sought on the ground that the Egyptian authorities had failed to give necessary clearances on time, required from the country’s defence establishment. The decision to continue with the Egyptian operations was taken despite the fact that it was found that the Egyptian operation alone would require another Rs 5,000 crore. The suggestion that withdrawal would be a cheaper option, as it would have to pay 250 million dollars, or about Rs 1,350 crore at the then rate of exchange, was rejected. Joti even declared that “high risk in exploration was worth taking” and the state government would “find money” for it.
“Preliminary results through aerial surveys suggest there is huge oil and gas reserve in the Egyptian areas which we had taken for exploration. There is no question of backing out, though the final decision will have to be taken by Gujarat government”, Joti had said, adding, the Egyptian officials, with whom the chief secretary and other officials held discussions, “agreed” that there was delay in the GSPC’s exploration activities as the PSU was not given necessary clearances on time for preliminary surveys, required from the country’s defence establishment.
The second delegation was sent more to make an on-the-spot assessment of the GSPC's five blocks in Egypt, and reversed Joti’s claims and recommended to the state government that it should “withdraw from Egypt”. Led by senior financial consultant with the GSPC, Manish Verma, the delegation consisted of top GSPC engineers who made an on the spot assessment. There was some difference of opinion between GSPC engineers sent from Gandhinagar and the senior technocrat who was in charge in Egypt, MY Farooqi. While the former said, it would be “too costly to continue with the operations, Farooqi insisted that it was worth going ahead", a top state official said.
The GSPC went global following Gujarat chief minister Narendra Modi’s insistence on the matter in 2006. Then under D Jagatheesa Pandian, who is state energy secretary now, the GSPC bid for and took several oil-and-gas blocks in Egypt, Australia, Indonesia and Yemen. In Egypt alone, it took five blocks. One of the blocks is onshore, situated in a huge expanse of 39,000 sq km area, most of it desert, while the rest of the four are offshore, deep in the Mediterranean. Work for two blocks began, while for the others it could not be commenced.