Estimate debunks ADAG claim of meagre Rs 500-crore gain
Amid allegations from the Anil Dhirubhai Ambani Group (ADAG) that the government was losing out on revenue from the Mukesh Ambani-controlled Reliance Industries Ltd's D6 field in the Krishna-Godavari basin, the Ministry of Petroleum and Natural Gas has estimated that the government would earn $17.8 billion over the expected 13-year life of the field.
This is significantly higher than the government revenues of Rs 500 crore that ADAG has been claiming in an advertising campaign that it launched on August 17.
The exercise marks the first time the Directorate General of Hydrocarbon (DGH), the upstream oil regulator, has worked out such an estimate. The exercise is not carried out in the normal course for oil or gas fields.
The estimates are based on the government-mandated price of $4.2 per million British thermal units (mBtu) which is valid for five years ending March 2014 but may go up if prices of the benchmark Brent crude goes up.
ADAG is currently fighting a court battle against RIL for gas from the D6 at $2.34 per mBtu for its power plant at Dadri, on the basis of a family agreement signed in 2006. State-owned power firm NTPC is fighting a separate court case on the same issue.
A senior petroleum ministry source said the government is estimated to earn $9.2 billion as profit petroleum, $6.5 billion as taxes and $2.1 billion as royalty, making for total earnings of $17.8 billion over the field life of 13 years.
RIL's own profit at $12.2 billion will be less than the government revenue, though it will be recovering cost through sale of gas as "cost petroleum".
ADAG's advertising campaign has questioned a revised capex plan for the D6 block, which, it claims, will help RIL make “super-normal profit of nearly Rs 50,000 crore, while the government gets only Rs 500 crore”.
The ADAG claim of RIL profit roughly equals DGH calculations but its estimate of government profit is significantly below the DGH figure. “The two figures are incomparable and far from reality,” the official said.
Defending the increase in production costs, the official also said the capex plan was revised from $2.5 billion in November 2004 to $8.8 billion in December 2006 since the estimates of gas reserves had increased from 3.8 trillion cubic feet (tcf) of gas to 10.3 tcf. Accordingly, the number of wells, the peak production and field life of the block was revised.
Peak production was doubled from 40 million standard cubic metres a day (mscmd) to 80 mscmd. Moreover, the cost of services like drilling, rig hiring, etc had moved up between 2004 and 2006. “The capex plan is just an estimate and RIL can only offset the actual expenditure from revenues. Moreover, the actual expenditure is subject to audit,” he said.
The official also said the petroleum ministry does not want NTPC to suffer as a result of this legal battle between RIL and RNRL. “We are with NTPC, whose claim to gas at $2.34 flows out of its contractual arrangement with RIL. It has nothing to do with this (RIL-RNRL) dispute,” he said.
NTPC's dispute is over a tender that RIL had won, whereas the RIL-RNRL dispute is over a commitment in a family agreement. The petroleum ministry has sought that the latter, insofar as it deals with gas should be declared "null and void".
