Reliance Industries has said its eastern offshore KG-D6 gas field development cost is much less than what Gujarat State Petroleum Corp's (GSPC) and state-owned ONGC are spending on projects in the vicinity of its KG basin find.
Reliance had in 2004 proposed a $2.4 billion investment for producing 40 million cubic metres per day of gas from 5.32 trillion cubic feet of reserves in the D1/D3 fields of the KG-D6 block. Later, in 2006, it revised the capital expenditure requirement to $5.2 billion in Phase-I for producing a higher 80 mmscmd of gas from 11.3 tcf of reserves.
Replying to a draft audit report of the CAG, which said that the increase in field cost would mean a lower profit take for the government, Reliance said, "It has set a benchmark for the lowest project costs across the world."
Its cost estimates for producing gas from the deepsea KG-D6 block are the lowest even in comparison to shallow water projects.
"Oil and Natural Gas Corp's block KG-D5 in vicinity, with a discovery made in 2001, has 1.9 tcf of gas reserves with an estimated development cost of $7.7 billion, for which a development plan is under preparation.
"Gujarat State Petroleum Corp's (GSPC) shallow water block in the same basin, which had a discovery in 2003, is estimated to cost $2 billion to develop 1.4 tcf," it said.
ONGC's KG-D5 block sits next to Reliance's KG-D6 area, where the first discovery was made in 2002. While Reliance took six years to bring KG-D6 gas on to production, even after 10 years of the first discovery, ONGC has not yet been able to put together a development plan.
Reliance said the allegations that government revenue interests have been affected by the 'gold-plating' are completely false.
The New Exploration Licencing Policy (NELP), under which Reliance had won the KG-D6 block in 2000, brought an end to the 'cost plus regime', where firms got a fixed return on all the capital they invested.
Under NELP, a contractor like Reliance "never benefits by an increase in costs," it said, adding it was imperative to view the revenue interest of the government from the point of view of the contribution of the project to the nation.
"Needless to say, inspite of all the noise, the draft CAG report has found nothing to suggest that Reliance indulged in 'gold-plating' viz that Reliance placed orders on its own affiliates at inflated costs or that payments made to vendors came back to Reliance," the voluminous 250-page response said.
After an extensive and detailed audit process, in which eight CAG officials spent six months on Reliance premises, "CAG does not state that any evidence exists to support any case that the contract cost has been dishonestly inflated."
"Using the benefit of hindsight, the CAG cannot question the technical and operational judgements of the operator that were in effect the best possible judgements at the time, based on the best information available," it added.