Having announced a controlling stake acquisition in Gujarat Gas Company Ltd (GGCL), Gujarat government-owned Gujarat State Petroleum Corporation (GSPC) is set to become the largest city gas distribution (CGD) player (with customers) in India. GSPC Group, through its subsidiary GSPC Distribution Networks Ltd (GDNL) had signed a definitive agreement with the British Gas (BG) Group to acquire 65.12 per cent stake in GGCL.
The state-run integrated gas player provides piped natural gas (PNG) for domestic customers through its wholly-owned subsidiary, GSPC Gas. The acquisition of controlling stake in GGCL by GSPC Group would almost the double domestic customers for the group to over 700,000 across the state. The number of domestic customers would surpass what the existing leading CGD players in India cater to.
Currently, GSPC Gas is supplying PNG to more than 370,000 domestic customers across Gujarat, while GGCL has a domestic customer base of about 350,000 mainly located in Surat.
It may be noted that, New Delhi-based Indraprastha Gas Limited (IGL) has about 355,000 total domestic customers, while Mahanagar Gas Limited, which supplies PNG to households in Mumbai, has a customer base of 585,000.
"This (acquisition of GGCL) is a step forward for GSPC Group. It makes good business proposition for the company as its dependence on RLNG and GAIL would reduce once it starts getting gas from its own wells from 2014 onwards," said Rajeev Shah, MD, RBSA Valuation Advisors LLP - a M&A advisory firm.
"Having a large area under its coverage will give an advantage to GSPC to make a strong case in front of the industry regulator, PNGRB to seek additional licenses for other locations in the country," added Shah.
Currently, GSPC Gas has a daily gas sales volume of 4.3 million metric standard cubic meters per day (MMSCMD) through PNG and CNG sales. Post the acquisition, GSPC has emerged as the country's largest gas distributor with total gas sales volume of close to 8 MMSCMD, which is far more than IGL or MGL.
"There is a natural monopoly for a gas distribution company as there will not be multiple gas connections in a household. In the case of GGCL acquisition by GSPC, it will make not much impact on the gas consumers in the respective areas, as both the companies had different operational areas," said Amitabh Kumar, partner, J. Sagar Associates (JSA), a leading national law firm in India. Kumar was the first director general of the Competition Commission of India.
BG would sell its 65.12 per cent ownership in GGCL at the share price of Rs 295 per share and GDNL will pay Rs 2,463.8 crore to BG for the acquisition. This marks the beginning of the exit of the British energy major from the CGD space in India. However, BG continues to have strategic holding in Mahanagar Gas, the city gas distributor in Mumbai.
In 1997, BG Group's BG Asia Pacific Holdings Pte Limited acquired majority stake in GGCL, which was originally promoted by Gujarat government and Mafatlal Group. The latest acquisition by GSPC Group brings the gas distribution firm back in the government kitty.
GSPC Group is one of the leading oil and gas exploration, development and production companies in India and is also one of the largest gas trading companies of the country. The Group has a significant presence in the gas transmission and gas distribution businesses. Government of Gujarat along with its public sector undertakings are majority shareholders in the Group.