How much does it cost for Mukesh Ambani’s Reliance Industries Ltd (RIL) to produce a unit of natural gas – over the supply of which it has been locked in a courtroom battle with Anil Ambani’s Reliance ADAG Group?
RIL’s own calculations on the Krishna Godavari (KG) basin gas are at stark variance with that of the regulator – the Directorate Generate of Hydrocarbons. The issue has a potential fallout on royalty revenues for the government. Officials, who estimate the figure at Rs. 1,700 crore, are investigating the issue.
While RIL has submitted its gas production costs at 89 cents per unit to the Petroleum Ministry for the purpose of valuation of government’s share of profit petroleum and royalty, the DGH has worked out the gas production cost at just 22 cents per unit.
Commenting on the issue, RIL said the DGH’s calculation method was not in line with the “generally accepted international industry practices” for computation of wellhead value.
“We do not agree with such clarifications by the DGH,” Reliance said in a letter to the ministry.
While RIL officials refused to elaborate, sources close to RIL said that for the purpose of calculating the post wellhead costs, the DGH has not taken into account all the operational expenditure incurred by RIL but has limited this to only the transportation of gas from the wellhead to the delivery point.
“We hereby submit the provisional estimates of post well head cost per unit for 2009-10 as required, which works out to be $0.8945 per unit for DGH certification,” RIL said in a recent letter to the DGH and the ministry.
When contacted a senior petroleum ministry official said, “We are looking into the issue as it will affect its royalty inflows from the D1 and D3 gas production.”
The official said that the wellhead value for calculating royalty figures---when done in line with RIL’s method –comes out to be $ 3.3105 per unit and comes to $3.9839 per unit when calculated under DGH’s method.
“As the government will have to take a direct hit on account of this difference, we are looking into the issue,” the official said.
At 5 percent of the difference between sale and cost price, the revenue loss in royalty to the government is Rs. 1,700 crore if it is done on the basis of RIL’s cost, the official said.