In the year 1998, Gujarat State Petroleum Corporation (gspc), one of the fastest-growing groups in the energy sector and the only state-government owned e&p (Exploration and Production) company in the country, created a Special Purpose Vehicle, Gujarat State Petronet Ltd (gspl), to set up a comprehensive gas grid infrastructure in the state. Five years down the line, gspl is being hailed as a catalyst that is helping propel Gujarat towards its goal of becoming the oil and gas capital of the country. The gas grid is being set up to connect the supply and demand centres of natural gas in Gujarat. It envisages transporting indigenous natural gas from production centres and lng from terminals to local distributors and end consumption points all over Gujarat through a high-pressure trunk pipeline. According to D.J. Pandian, managing director of gspc and director of gspl, "The establishment of the gas grid through our group company, gspl, has been a dream project, gspl is the only gas transmission company in India operating on the Common Carrier Principle. It is also the only state-wide gas grid to connect industrial and domestic consumers." The total cost of the gas grid project, which is being carried out in two phases, is Rs2,500 crore. Phase I, for which an outlay of Rsl,200 crore has been made, involves laying down 525 km of pipeline. Out of this, 200 km of pipeline is already under operation and maintenance. Phase I is further divided into two parts. Under Part A, priority was given to the industrial belt between Hazira and Kalol. About Rs900 crore has been invested in Part A and gas has reached upto Vadodara, with companies like gipcl and gsfc already receiving it through the pipeline. Part B involves the Surat-Vapi stretch. Work on this stretch commenced in 1999 and should be completed by October 2004. Phase II involves the Ahmedabad to Morbi stretch and it will cover a distance of 600 km. Along the way, it will pass Mundra port, the Saurashtra region, Rajkot, Jamnagar, Pipavav and Alang. The cost envisaged is Rsl,300 crore and work should commence by December this year and should finish by March 2006. In between this period, piped gas will reach Ahmedabad from Vadodara by April 2004. "Plenty of action is thus expected in the coming days," says Pandian. Apart from gspl, Gujarat is poised to see hectic activity on the oil and gas front from various other companies as well. According to S.K. Shelat, advisor to Gujarat's chief minister, "It is expected that the overall development of a gas-based economy in Gujarat will result in an additional investment of more than Rs40,000 crore in the next five years." Already, Shell and Petronet lng are in the process of setting up their lng terminals at Hazira and Dahej, respectively, at a cost of Rs3,000 crore each. The first consignment of lng is expected to land as early as January 2004. Hence, it is vital for gspl to have the infrastructure in place so that it gets a sizeable share of natural gas to flow through its pipeline network. Industry sources say that as of now, gspl has 31 per cent of the naural gas transmission business in Gujarat, which, in volume terms, is between 7-8 mmscmd out of a total of 24 mmscmd. "This is chiefly because the only other company in the business of transporting gas, currently, is gail. If other companies get into gas transmission, competition will naturally hot up. Already, surplus capacities are being generated for gas transmission -apart from gspl's pipeline network, two new pipelines of gail and the hbj pipeline are also on course. To stay ahead in the business of natural gas transmission, gspl will have to explore new avenues to increase the availability of gas in its network. Moreover, it will have to target new bulk consumers like ntpc, the Torrent group and the like," says an industry observer. But Pandian is not too worried on this front. "We will be supplying gas to power plants, fertiliser plants, ceramic industries, etc, which are all heavy users of gas. The automotive sector is also being aggressively targeted for gas usage. Besides, we have Gas Transportation Agreements with 12 government-owned and private companies, namely, Essar Steel, Essar Power, Kribhco, geb, gpec, gnfc, Narmada Videocon, gsfc, gpcl, gipcl and Gujarat Gas. Besides, we will be signing similar agreements with aec, Arvind Mills, Adani Energy and the like. Our project, in fact, is going as per schedule and we are on course. There have been no time or cost overruns," he says. However, gspl has faced a problem in its endeavour to sell a part of its stake to various interested parties. Earlier, the company was looking to offload 11 per cent equity each in favour of companies like Shell, Gaz de France, Gail and Kribhco. However, this proposition has come undone, with most of the prospective companies demanding a higher stake than what gspl was willing to part with. "We had a ceiling of 11 per cent for each company, but it has not worked out," admits Pandian candidly. "Hence, we are not divesting as of now and till such time as suitable partners are found, the parent company, gspc, will fill in the gap. Actually, not being able to go ahead with our original plan has not created any financial difficulty for us. Our consortium of bankers, led by sbi, has extended a line of credit worth Rs600 crore to us. This has enabled the company to complete Phase I without any financial problems. We are, in fact, generating enough revenues to service our investment," he adds. Market sources add that for future fund requirements, gspl is looking at all possible avenues, including a public issue and external commercial borrowings. It has also raised debt through bonds, deposits and term loans from banks. Says Pandian, "Performance has been quite satisfactory so far. Revenues have been going up -in the year 2002-3, our turnover was Rs91 crore. This is expected to jump up to Rsl26 crore in 2003-4. For an investment of Rs 1,200 crore, this is quite adequate." Industry observers agree that the financial performance has been quite up to the mark, so far, and that it will derive the first mover advantage in this sector. According to Ernst & Young, "The rationale behind the gspl project is that there is a huge unsatisfied demand for gas. Moreover, substantial quantities of imported gas are expected to be available from different locations in Gujarat. And there are no significant spare capacities available at present to transport the increasing local supplies of gas to potential demand centres." Hence, gspl could be said to be in the right place at the right time. gspl will also play an important role in the project of setting up cng stations, for which consulancy firm Dalai McDermott is preparing a detailed report. Pandian, in fact, is quite enthusiastic about the cng stations. "We have about 20 cng stations planned. These will be linked to the gspl gas grid project. The stations are being positioned more as 'synergy stations'. Conceptualised and designed by renowned architect, B.V. Doshi, we are projecting the stations as hangout joints as well. We are currently in the process of signing MoUs with other oil companies for setting up cng stations. We can also set up a cng terminal in exiting petrol stations, provided there is enough space. Petrol pump owners will also benefit alongwith us, by having an alternate fuel for customers," he adds. The first cng station, set up on a pilot basis, is already operational in Surat, near Icchapore. Describing the advantages of cng, gspc officials say that it is about 50 per cent cheaper than petrol, with the price per kg being Rsl8-Rsl9, as compared to Rs35 or thereabouts for a litre of petrol. Moreover, the price volatility is also less. Thus the cost of installation is covered in about two to three years, depending upon the daily run of a vehicle. "The mileage of a vehicle running on cng increases by two to three kms as compared to one running on petrol. Besides, cng is very environment-friendly because of its composition, 94 per cent of which is methane gas. Thus, it helps greatly in reducing pollution emission levels of a vehicle by 80-85 per cent, as compared to petrol/diesel-driven vehicles. A vehicle converted to run on cng can also run concurrently on petrol. This facility is useful when the vehicle runs out of cng stock," gspc officials add. gspc is making available a car kit for conversion to cng at Rs22,000 and an auto kit for Rsl8,000. "In six to eight months, the cost can be recovered. We are very serious about the cng stations project and our goal is to have the largest number of cng-based vehicles anywhere in the world in Gujarat," Pandian asserts. According to Shelat, "In order to encourage more use of natural gas/lng in India, two important factors will have to be borne in mind. Firstly, the existing power plants and fertiliser plants will have to be provided incentives by way of a reasonable price of natural gas to enable them to switch over from the existing coal/naphtha as fuel or feedstock. Second, the choice of fuel for the new power projects will be determined by the relative cost advantage of location-specific fuel availability. But the advantage of gas as a fuel is that it is very environment-friendly and can be used for generation of electrical energy with very high efficiency." Piped natural gas (png) for the domestic sector is also on the cards. The Adani group will be part of this venture, wherein it will distribute the gspl-transported gas for domestic purposes in Ahmedabad and Vadodara. "Just like cng, png is also about 50 per cent cheaper than lpg. The cost of installation of Rs5,000 is covered in four to five years. Its other advantages are that there are less chances of explosion, it saves space in the kitchen and also, the customer is spared the trouble of calling up a gas agency for refilling. Supplying gas to the domestic sector could earn major revenues for both gspl and the Adani group, once the concept catches on and the convenience becomes evident to the householders," experts point out. With most of the plans falling in place, C.K. Koshy, chairman, gspc, also seems to be quite upbeat about the proceedings at gspl as well as the parent company. "Things have gone well for us but we are not harping on that. We are looking ahead. For Nelp IV, we have bid for four blocks and also for coal bed methane. As far as our pipeline laying project is concerned, work is going on round-the-clock. Pipelines have a certain speed -the industry norm is 2 km per day. We have kept pace with that. Moreover, the recently concluded Vibrant Gujarat Global Investors Summit went off very well for the oil and gas sector. There is a lot of excitement in the oil and gas segment in Gujarat, and gspl, in fact, articulates the excitement of the sector." Echoing the views of his chairman, Pandian says that the objective of gspl is to make gas available on demand anywhere in Gujarat by the year 2007. This does not seem to be a far-fetched idea since the natural gas and lng industry is already on a growth path. And gspl has positioned itself as a critical part of the industry value chain.