Mukesh Ambani’s foray into the capital-intensive semiconductor business with a mammoth investment of Rs 30,000 crore has been deferred because of the financial crisis, said informed sources. As part of the cost cutting, the company has also asked some of its employees in the semiconductor division to resign, they added.
"Reliance Industries was in the process of finding a location for building the semiconductor wafer fabrication plant and solar PV module unit and recruited a team of experts for the project. But the unprecedented developments in the financial sector has forced the company to defer most of its fresh investments in new initiatives," said sources.
An RIL spokesperson said, "As a part of our business expansion, we continue to evaluate various long-term potential opportunities. As a matter of policy, we don’t comment on our business, which is still in the evaluation stage."
For 10 years, RIL requires Rs 18,521 crore for the establishment of a semiconductor wafer fab with assembly, test, mark and packaging (ATMP) facility. The company had earlier planned to locate the proposed facility – with a fab capacity of 70,000 wafers per month and ATMP capacity of 10 million packages per week – at its special economic zone (SEZ) in Navi Mumbai.
Reliance also planned to manufacture polysilicon, solar-grade wafers and SPV modules with capacity of 1 giga watt, with an investment of Rs 11,631 crore over a 10-year period. This project located at the Jamnagar SEZ in Gujarat was expected to create over 11,000 jobs. The facility at Navi Mumbai was expected to create 4,000 jobs.
"At present, the company is finding it difficult to source funds for its new investments since banks have restricted corporate lendings. As RIL is the largest business house, it could survive in the current situation, But the company will face trouble in the future if it does not cut costs and scrap the new investments," said a Mumbai-based analyst.
Under the new semiconductor policy, RIL had sought a subsidy of Rs 3,394.5 crore for the semiconductor fab and Rs 2,326.2 crore for the solar project. Apart from Reliance, Videocon Industries (Rs 8,000 crore investment), Moser Baer PV Technologies (Rs 6,000 crore), Titan Energy System (Rs 5,880 crore), KSK Energy Ventures (Rs 3,211 crore), and Signet Solar (Rs 9,672 crore) had also submitted the proposals to build semiconductor manufacturing facilities in April this year.
Says KG output will be delayed
Natural gas production from the Krishna-Godavari (KG) basin will be further delayed. Reliance Industries (RIL) has informed the Directorate General of Hydrocarbons (DGH) that the company will take a decision on production of gas from the field by the end of this month.
This will be the second time RIL is postponing the production of gas from its KG basin. RIL had this September announced that the gas production is expected in the first quarter of 2009. According to sources, the company in a letter to DGH has stated that the gas production activity from the field has been put off temporarily due to the recent terror attacks in Mumbai and a bad weather in the Bay of Bengal during November.
“RIL has contractors who come from abroad to work on its fields. In the light of recent terror attacks in Mumbai, various embassies have recommended their citizens to avoid all non-essential travel to Mumbai. This will have an effect on the production activity of the company,” said a DGH official.
The company started production of crude oil from the basin this September. During a media briefing in September, Mukesh Ambani, Chairman, RIL, said: “Commercial production of gas from the D6 block in the KG basin would start from January-March quarter.”
Chief Executive Officer, (oil and gas) PMS Prasad however, had maintained that though its deadline was in the second half of this financial year, the internal target was third quarter (of 2008-09).
RIL spokesperson could not be reached for a comment. RIL will review the situation at the end of this month, the DGH official added. RIL produces around 5,000 barrels of oil a day from the KG basin. This production would be scaled up to 550,000 barrels a day over the next 4-6 quarters. This would account for 40 per cent of domestic output. Gas would account for 90 per cent of production from the D6 block, and crude the rest. According to Ambani, by FY10, oil and gas would contribute 25 per cent of the RIL’s profits.
