Discussions between British Gas (BG) and a consortium led by Gujarat State Petroleum Corp (GSPC) over acquiring the former’s stake in its subsidiary, Gujarat Gas Corp Ltd, are still on, with BG getting an offer 13-15 per cent lower than its expectations.
GSPC, with its consortium partners Oil and Natural Gas Corp Ltd and Bharat Petroleum Corp Ltd, had offered between Rs 3,800 crore and 3,900 crore for the 65.12 per cent stake in Gujarat Gas, said a person familiar with the offer, requesting anonymity.
BG, on the other hand, wants around Rs 4,500 crore for its stake. “BG is not agreeing to our pricing and we do not agree to theirs. We need to come to a consensus on this. The matter is being discussed among the boards of the respective companies. We will shortly decide on this,” said a senior member of the consortium.
In the last meeting between the two companies that was held in April, sources said, BG and GSPC could not reach a conclusion on the matter of valuation. In an emailed response, BG said: “We confirm that formal and final bids for BG Group’s interest in Gujarat Gas closed on Thursday, March 15. As the process is still under way, it is not appropriate for us to comment further at present. We will inform the market when we have something to announce.”
GSPC could not be reached for an official response, despite repeated attempts. GSPC holds 50 per cent stake in the consortium, while ONGC and BPCL hold 25 per cent each. The newcomer in the consortium, Oil India Ltd, will get five per cent stake from ONGC and BPCL each, if the deal goes through.
Consortium members said they were worried that the Petroleum and Natural Gas Regulatory Board’s (PNGRB) recent crackdown on city gas distribution network rates and compressed natural gas (CNG) charges could hit Gujarat Gas’ valuation.
“Though we continue to maintain a positive view on the stock on account of changing business mix and high latent demand in Gujarat Gas’ areas of operations, we foresee regulatory uncertainties associated with the CGD (city gas distribution) business adversely impacting the outlook,” said Deepak Pareek, a research analyst at Prabhudas Lilladher Securities
PNGRB last month ordered Indraprastha Gas Ltd (IGL), the monopoly CNG distributor in Delhi, to refund around Rs 1,000 crore, which the regulator said was from excessive charges, to consumers, besides reducing rates.
The valuation of Gujarat Gas depends on the outcome of PNGRB’s decision on granting exclusive rights for city gas distribution in its operating areas.
PNGRB recently awarded authorisation to Gujarat Gas for city gas distribution under the regulations that require existing players to seek its permission for their business. As a next stage, the board is examining marketing exclusivity permission.
Going by the PNGRB (Exclusivity for City or Local Natural Gas Distribution Network) Regulations, 2008, Gujarat Gas could expect marketing exclusivity for three years, a BG Group spokesperson said. The authorisation application, he said, was expected shortly, being in the final stages of processing by PNGRB.
PNGRB regulations provide marketing exclusivity of three years for companies present in a city prior to the regulations and five years for new ones. Companies in the city gas business are also entitled to a network exclusivity of 25 years, extendable by 10 years if the operator met all the terms and conditions. Marketing and network exclusivity kicks in from the date of authorisation.
Once the exclusivity decision is taken, the company would be required to apply for rate approval. Gujarat Gas has been in the business of gas distribution for nearly 25 years. It supplies to 340,000 domestic, commercial and industrial consumers and serves 168,000 CNG users through a pipeline network of nearly 4,000 km.