Reliance seeks freedom to fix gas prices
RIL had won the KG-D6 block in Bay of Bengal under the first round of bidding
Mumbai: In his first direct comments on regulatory challenges faced by oil and gas business, billionaire Mukesh Ambani on June 12 said the contractual commitment of marketing and pricing freedom for natural gas, along with risk-reward balance, must be met.
Ambani's Reliance Industries, which has faced regulatory actions in the form of disallowing a fourth of eastern offshore KG-D6 cost for gas output lagging targets, is locked in arbitrations with the government over multiple issues. Addressing company shareholders, he said oil and gas exploration and production (E&P) business contributes just 0.6 per cent, or about Rs 194 crore, to RIL's pre-tax profits but has helped the nation save USD 34 billion in foreign exchange by bringing to production KG-D6 fields in record time.
"We are aware that the domestic E&P business, while creating huge economic value to the country, has generated shareholder returns lower than the cost of capital. "This is in sharp contrast to other domestic infrastructure sectors such as roads, fertilisers and power where 12 to 16 per cent returns are assured under the policy," he said.
Stating that 5-6 trillion cubic feet of discovered resources, more than double the 2.5 Tcf gas produced from KG-D6 in last six years, are waiting to be produced, he said, adding that these are very capital intensive and technically challenging. "We are aware that future investments hinge upon the continuing confidence of our share-owners in this high risk business," he said.
"We are constructively engaged with the government to resolve legacy issues in a timely manner with regards to our rights to cost recovery, gas pricing and other issues to create value for the nation and our shareholders." RIL's arbitrations against the government include dispute over disallowance of USD 2.4 billion cost and gas pricing.
"In this context, it is important to follow the intent, purpose and commitment of the NELP Policy i.e. maximising E&P activities, getting the risk reward balance right and providing marketing and pricing freedom. This will provide predictability and certainty to the investors," he said.
RIL had won the KG-D6 block in Bay of Bengal under the first round of bidding under New Exploration Licensing Policy (NELP) round in 2000. "We are hopeful that the government will address this policy issue in the larger interest of attracting investments in the critical E&P business," Ambani said.
He said RIL and its partner BP believe in the potential and promise of India's deep waters. "BP brings unmatched global expertise in deep water exploration and production to this country. We have constantly innovated to maximize recovery and sustain production from the KG-D6 block, despite these being located in one of the most challenging geological reservoirs," he added.