Post DGH meet, Andhra in two minds

After deciding to emulate Gujarat, the Andhra Pradesh government seems to be in two minds on taking a plunge into oil and gas exploration.

The government is keen on finding a right business model to pursue the activity, though it has already decided to form a special purpose vehicle (SPV) for taking up oil and gas related activity.

On Tuesday, V K Sibal, director-general of hydrocarbons (DGH) was in Hyderabad to make a presentation to Andhra chief minister Y S Rajasekhara Reddy about the opportunities in the sector.

Sources who were participating in the presentation programme said the DGH was focusing more on the potential in the Krishna Godavari basin and the way the state can make best use of the situation.

“Basically, we are here to explain what kind of prospects AP has if it wants to develop its infrastructure. The prospects in KG basin are very high. We think that AP will be easily possible to produce more than 120 million cubic metres of gas, which, we think, is just tip of the iceberg and the opportunity is much higher than that,” Sibal said after coming out of the meeting with Reddy.

On the issue of the state-run companies not finding a right business model, which was evident in the case of Gujarat vis-a-vis Reliance, Sibal said, “There is a business model. The state need not go into E&P sector directly. They can float a special purpose vehicle. Even if the State gets 10% of K-G basin gas, it is good for AP. They have to make their strategies and we have made our recommendations.”

Andhra Pradesh is currently looking at justifying the costs it would have to bear for taking up the oil and gas activity. Making employment generation as the benchmark, the CM has asked officials to work out the right business model.

However, the officials are also concerned the upstream activity of exploration would not be able to meet the benchmark of employment generation, while the mid-stream and downstream activities would serve the purpose.

“It is still too early to decide whether to go in for exploration directly. The option would be to form an SPV for the entire chain of events in the oil and gas activity. But, the state would definitely rope in a partner to focus on the upstream and mid-stream activities while reserving a say on the downstream activity. This would help it create more jobs while the core business of exploring and evacuating the gas or oil would taken up by the other partner,” an official involved in the process said.

According to a statement from the chief minister’s office, the DGH informed the CM that there is a resource availability of approximately 6,550 mt in Andhra Pradesh, predominantly in the KG Basin and so far only 747 mt has been explored. About 89% of the resources are still unexplored.

“However, it was revealed that the Gujarat and Assam governments have entered upstream E&P business and the model was a failure. The GSPC has invested Rs 6,300 crore and accrued 47 mt since they were unable to identify the technical partners to overcome operational problems and due to slow approval procedures and delay in decision making,” the statement said.