Dec 27, 2011, 04.32 PM | Source: CNBC-TV18
Hasmukh Shah, chairman of Gujarat Gas is worried about the stoppage of further oil and gas production due to delay in decision making by the government.
In an interview to CNBC-TV18, Shah said, "What bothers me is that further production of oil and gas has been halted and that India cannot afford. Decision making has become difficult after the telecom incident."
He further said that production output has fallen because certain important decisions that are required from government were not been taken .
Below is the edited transcript of Shah’s interview with CNBC-TV18. Also watch the accompanying video.
Q: How much have you raised prices as far as the industrial consumer on the CNG side is concerned? Have you been able to cover all of your costs or are you still absorbing some of the higher costs because of the imported LNG?
A: I suggest that you have a word with managing director on the subject because this happens on a day to day basis. I look at this on a quarterly basis as chairman, but the cost would be covered. Normally, we raise the price on a quarterly basis, so in between if anything happens then the cost gets recovered.
Q: Has there been any kind of demand resistance because of you have to hike price on a regular basis, primarily because LNG prices have gone up in the international markets quite sharply. So have you seen any kind of demand resistance?
A: No. By and large the customers understand the reality. The industrial customers are intelligent enough to know that the international prices and the cost are going up and the exchange rate of rupee dollar also adds to it. Now if we take that into consideration, people do realise the problem. Problem arises, for instance the rickshaw drivers would feel it with the CNG. But now they too understand. We found that the original resistance which we found in Surat, now by and large they understand. I don’t think we should look at it in the short-term perspective.
Whatever reserves are present in India both oil and gas, have to be tapped in a scientific manner. There was a plan in place. Reliance was going to gain about 80 million cubic meters per day from D6. Cairn was there, now Panna Mukta Tapti has some plans. There are issues in arbitration. Then there are various statements coming from responsible people in the government and within the industry.
I am not worried about all those things. What bothers me is that further production of oil and gas has been halted and that India cannot afford. Decision making has become difficult after the telecom incident. People in government would hesitate to take decisions. If any decision is taken, one is likely to be branded as Pro A or Pro B. In this mood of anti-corruption everything is viewed from that light.
Q: What exactly are you saying by way of stoppage of production? You are saying that gas output has fallen because of absence of decision making?
A: Yes, output has fallen because there are certain decisions required from government.
Q: Are you referring largely to KG basin?
A: KG basin at the moment, but it will apply to Panna Mukta Tapti also. They also have to put in money into it and certain clearances would be needed. A view has to be taken as soon as possible. If it is arbitration let us process that arbitration on one side. But if decision making is difficult, we could have a mechanism of eminent peoples committee - an economist, a technologist and maybe a judge because in India judge is needed for everything. If we have that committee and the committee recommends that provisionally you can go ahead with this kind of thing. The concern is that we are looking at being spot prices of gas mainly or long-term commitments of gas. These are unlikely to remain steady at least for some time and the prices are going up.
Q: Is that one of the reasons why BG actually wants to exit? The other theory being put forward is that Gujarat Gas is a very small part of BGs overall scheme of things, less than about 1% of revenues. So is divestment from non-core businesses a reason? Is BG frustrated with the kind of policy making we have seen in the oil and gas space?
A: No, not so far as Gujarat Gas is concerned. BG has a 10-year plan of investment of USD 130 billion. For that, they need to raise resources from within wherever it is possible. BG is an upstream company, in downstream there are rare cases and Gujarat Gas is one of them.
Q: By when do you expect the process to be finalized? There is an expectation in the market that a final outcome could be known by January. Would you concur with that point of view?
A: The timetable has been laid with Citi Corp. Citi Corp have received letters of intent. The last date is January 10 for people to register. Based on that, Citi Corp will then shortlist as soon as possible. That shortlist will be seen by BG and after that the process will start.
Q: The entire stake of British Gas is to be offloaded in that transaction?
A: Well, that appears to be the present situation. It depends on what bid you get and what kind of market response it gets.
Q: You expect therefore clarity will come within how much time after January 10th when the deadline expires?
A: I believe by the end of January.
Q: Have state owned entities also evidenced interest? Do you have any inkling of who has actually submitted bids till now?
A: I wouldn’t know because this has been given to Citi Corp. There are still 10-15 days to go.
Q: BG also helped Gujarat Gas source a lot of gas and particularly PMT. There is a worry in the market that if BG makes an exit there could be a possibility that you could lose out on some of the PMT gas supply. Would that worry be unfounded? Would you believe that you will continue to get the PMT gas?
A: No, because Gujarat Gas through BG has sources of supply. Gujarat Gas is not in that position. The Panna Mukta Tapti (PMT) gas is there atleast for a few years. Continuous flow of that gas could come with more investment flow of that gas. But, that it is not the problem of one company. Fuel requirement is the problem of the entire country. For that we need to have a national policy on the best ways for importing gas.