Wants ‘malicious, ill-informed’ ad flow on its gas field ‘nipped’.
Reliance Industries Ltd (RIL) has hit back at the Anil Dhirubhai Ambani Group (ADAG) for unleashing what it calls a “malicious, mischievous, baseless and ill-informed” media campaign against its Krishna Godavari (KG) gas basin development costs. RIL wants such endeavour to be “nipped”.
According to RIL, the capital expenditure for the KG-D6 fields increased from $2.47 billion in 2003 to $8.83 billion due to a 2.5 times increase in reserves, trebling of production facilities, doubling of peak production, hike in number of wells, field life and inflation in the equipment and services industry. In a letter to Union petroleum secretary R S Pandey on August 20, RIL’s president and CEO (petroleum), P M S Prasad, has stated that “certain parties are bent upon holding the country’s pride and national interest hostage to their own narrow commercial interests and are stopping at nothing to destroy the reputation of the country.”
The government had on August 21 also come out with a press note giving its version on the issue, while also advising ADAG not to engage in the media campaign, noting the issues were pending a Supreme Court decision.
One of the issues raised through the public advertisements in national and local dailies relate to the capex increase from Rs 12,000 crore to Rs 45,000 crore, which was described as a windfall profit to RIL. The “malicious intent” of this statement is evident, RIL states, in the way it does not even mention that this increase was concomitant on a massive expansion in the scope of work, let alone debilitating market conditions that set in as crude prices broke all known barriers at the time of execution of the project.
Ultimately, the cost and profit share in a production sharing contract (PSC) regime are not dependent on capex estimates. There are well informed systems of checks and balances to monitor actual cost recovery. This includes tendering procedures, approvals by the management committee or the government, statutory audits, and audit by the government under the PSC. The government, anyway, has the power to veto all management committee decisions and hence no approvals or decisions can be taken without the express assent of the government, the letter said.
