GSPC-Gujarat Gas Merger To Integrate Gas Sourcing, Cut Costs, Says Milind Torawane

The merger of Gujarat State Petroleum Corp, with Gujarat Gas Ltd., will make the latter the only city gas distribution company in India with an integrated gas sourcing- facilities leading to better scale of operations and cost effectiveness, said Milind Torawane, managing director of GSPC and Gujarat Gas.

The integration will synergise the manpower, skills, and various other functions of the two companies leading to scale of operations and cost effectiveness while providing assured availability of natural gas supply to the city gas distribution business, he said, while addressing the analysts in a call.

GSPC the natural gas trading arm of the group supplies 60% of the natural gas to Gujarat Gas on a long- term contract basis while 40% is supplied in the spot market.

“At present we have two long term contracts with Gujarat Gas one ending in April 2028 and the other in 2030. All the contracts are on cost plus basis, while the gas sold in spot is dependent on the market price. The contracts are oil linked,” Torawane said adding the gas is also contracted from producers like Vedanta and RIL.

The official believes that better leverage combined assets and the expanded capital base of all businesses put together will provide access to cash flows that will be deployed in organic and inorganic opportunities. The companies will also have improved profitability and return ratios on account of varied gas sourcing portfolios.

The company aims to become India’s largest integrated player with presence in gas trading and city gas distribution business.

Also, the existing renewable portfolio of 123.9 MW of wind power generation capacity will be expanded organically in future, Torawane said

Merged Gujarat Gas will be looking at deploying the cash for higher volumes, other energy options and more diversification. It will see RE power expansions although existing thermal power assets won’t be expanded, Sabri Hazarika, power sector analyst at Emkay Global said.

Demerger of natural gas transmission business is to ensure adherence to regulatory requirement and will provide potential value unlocking for GSPL shareholders, the company said.

The gas transmission business demerger (GSPL Transmission-GTL) is a regulatory requirement, hence the company would go ahead with this. GIGL (Mehsana Bhatinda) line and GITL will be part of GTL as subsidiaries. Management structure would remain similar even after GTL demerger as is the case now with GSPL, Hazarika said in a note.

On Saturday, the board of directors of Gujarat State Petroleum Corp, Gujarat State Petronet Ltd., and GGL had approved the scheme of restructuring for the group entities.

As per the proposed restructuring GSPC and GSPL will be merged with Gujarat Gas Ltd, and in the second phase the gas transmission business will be demerged from GGL into a newly incorporated entity GSPL Transmission Ltd.