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Reliance gas find bill faces scrutiny

Government asks RIL for independent review of expenditure in Krishna-Godavari field, reports Deepak Joshi.

business Updated: Aug 26, 2007 23:11 IST
Deepak Joshi

The government has asked for an independent review of expenditure involved in oil and gas exploration by Mukesh Ambani-led Reliance Industries Ltd (RIL) in the Krishna-Godavari basin to probe claims that the company may be inflating expense figures to boost its case for higher cost-linked prices.

This is the latest episode in a tussle between RIL on the one hand and state-run NTPC and younger Ambani sibling Anil’s Reliance Natural Resources Ltd (RNRL) which would buy RIL’s gas to aid power generation. Rival lobbies are fighting shadow battles over regulation-linked concepts and numbers that would determine gas prices.

Rising cost

$2.47 billion
Earlier Phase-I capital expenditure

$5.2 billion
Phase-I capital expenditure now

$3.6 billion
Additional expenditure proposed for Phase-II

The Petroleum and Natural Gas Ministry has appointed leading reservoir engineer P Gopalakrishnan to look into the reasons for a rise in the first phase of capital expenditure on the D6 block from $ 2.47 billion to $ 5.2 billion and an additional $ 3.6 billion proposed for the Phase-II set to begin in 2010 to maintain a pleateau production of 80 million standard cubic meters per day.

“Simultaneously, under long-term strategy, efforts are being made to engage an internationally reputed engineering consultant company for detailed review of the development plan. Expression of interest notice was issued on August 10. It is expected that the work will be awarded shortly,” a senior Petroleum Ministry official said.

At the heart of the row is the question of what is the right level of expenditure behind one of India’s biggest gas discoveries in recent years.

Petroleum minister Murli Deora hopes to put an end to the controversy and bring in greater transparency in development plans for various licences awarded under New Exploration Licensing Policy.

The minister called for an independent review while meeting his ministry officials including the Directorate-General of Hydrocarbons, the oil industry regulator.

Six short-listed international consultants including Mustang Engineering of US, Pajak Engineering of Canada, Petrofac of UK and Beicip Franlab of France will be appointed to carry out validation of the proposed field development plan, the head of the oil regulator, V K Sibal wrote to the ministry last week.

In a detailed letter to petroleum secretary MS Srinivasan, Sibal pointed out that the $ 8.8-billion investment approval was limited only to establishing the techno-economic feasibility of producing gas from Dhirubhai-1 and 3 fields in KG-D6. RIL will however be reimbursed costs from gas sales based on actual independently audited expenditure and not on the basis of the approved field development plan.

Capital expenditure under contractual terms is based on international bidding. Sibal said investment was revised because of a higher gas potential and increased engineering and procurement charges.

He said the cost per barrel of D6 block is estimated to be very competitive when compared to international companies and other discoveries in the country.