Gandhinagar

The Comptroller and Auditor General has called into question state PSU Gujarat State Petroleum Corporation’s investment of Rs 19,576 crore in its Krishna Godavari (KG) block project, saying “future prospects” of the block remain shrouded in “uncertainty”.

In 2005, Narendra Modi as Gujarat chief minister had announced that GSPC had struck 20 tcf gas in the KG basin block, named ‘Deendayal block’, where commercial production is yet to start.

CAG, in its report tabled before the Gujarat Assembly two days go, painted a gloomy picture of GSPC’s finances, as its borrowing stood at Rs 19,716 crore as of March 2015, a jump of 177 per cent since 2011.

“The company went ahead acquiring overseas blocks during 2006-10 mainly as an operator with considerably high participating interests and without any prior experience overseas. The delayed execution of work resulted in cost escalations in such blocks,” it said.

The activities in KG block also caused an increase in company’s borrowings to Rs 19,716.27 crore as of March 31, 2015, which was 177 per cent higher than Rs 7,126.67 crore as of March 31, 2011, the report said.

“The company had to rely heavily on borrowings mainly for activities in the KG block. The total interest burden rose from Rs 981.71 crore in 2011-12 to Rs 1,804.06 crore in 2014-15,” it stated.

“The company did not address properly the risks associated with cost, technology, and gas pricing (regarding KG block). This has resulted in uncertainty regarding the future prospects from the KG block where an investment of around Rs 19,576 crore was made as of March 2015.”
“The development costs incurred in the KG block also resulted in increased borrowings and stressed finances,” the CAG noted.

GSPC, according to the CAG, has outstanding dues of Rs 2,329.52 crore, which it’s still to recover from its JV partners GeoGlobal Resources and Jubilant Offshore Drilling.

The CAG report further said GSPC surrendered more than half of the gas blocks it had acquired and wrote off Rs 2,514.65 crore expenditure.

The company’s failure to discover gas led it to surrender of 37 out of 64 blocks it held as of April 1, 2009, 10 of these being overseas. Out of the remaining 27 blocks, 16 are under production and 11 under exploration and development (E&D).

Factors such as “underestimation of costs, failure to address technological uncertainties and deficiencies in project implementation” added to confusion about future prospects of the KG block, the official auditor said.

Before the audit period, during 2006-10, the company acquired overseas blocks “just because of its keenness to acquire blocks without any prior experience overseas”.

Delay in execution of work led to cost escalations, with the company incurring an expenditure of Rs 1,757.46 crore, of which Rs 1,734.12 crore had to be written off, it said.PTI