New Delhi, July 28: The government has approved ONGC's acquisition of Gujarat State Petroleum Corporation's entire 80 per cent holding in a KG Basin gas block for Rs 7,783 crore - a move many analysts see as a bailout for the loss-laden state-run oil explorer.

The company will also pay a part consideration of $200 million to GSPC towards acquisition rights for discoveries other than the DDW field.

Initially, GSPC had offered ONGC its 50 per cent stake together with operatorship in the Deen Dayal West block, but ONGC turned down the offer. Subsequently, GSPC offered its entire 80 per cent stake in the block last year.

Though it is a bailout package for GSPC, analysts feel, the block could prove to be a good asset for ONGC if they are able to commercially exploit the resources.

GSPC, promoted by the Gujarat government, was laden with a huge debt of Rs 19,716.27 crore as on March 31, 2015. Though the firm has so far made nine gas discoveries in the Bay of Bengal block, it has remained mired in controversy. Of the nine, three - KG-08, KG-17, KG-15 now known as Deendayal West (DDW) fields - have been approved for development.

In a report tabled in the Gujarat Assembly in March 2012, the CAG had passed strictures on GSPC's operations in the KG block, stating "numerous faulty investments and destructive administrative decisions" had led to a loss of Rs 7,000 crore to the company. Most of these investment decisions were taken when Prime Minister Narendra Modi was the chief minister of Gujarat.

GSPC had claimed that it would begin gas production from the block in 2013. However, after sinking in $3.6 billion it was found that gas reserves were one-tenth of the 20 trillion cubic feet claimed in 2005 and that too was technically difficult to produce. The CAG said the company's exploration cost in the KG basin was 12.81 times higher than the estimated cost.

The criticism by the CAG resulted in a political storm with the Congress party alleging that the Rs 20,000 crore spent by Modi as chief minister on his showpiece project had been a waste of resources as there was very little gas in the block. In another report in 2016, the CAG went on to say "the company did not properly address the risks associated with cost and technology".

ONGC officials admit that against an approved field development plan cost of $2.75 billion, GSPC has seen a huge cost overrun, incurring $2.83 billion as on March 31, 2015.