Reliance Industries says Aam Aadmi Party allegations 'factully incorrect'

Written by PTI | New Delhi | Updated: Mar 13 2014, 02:06am hrs
Reliance IndustriesReliance Industries said there was 'not even an iota of substance' in the allegation. Reuters
Reliance Industries has refuted allegations by the Aam Aadmi Party (AAP) that oil ministers Mani Shankar Aiyar and S Jaipal Reddy were removed because they did not favour the company, saying the "malafide propaganda" was "factually incorrect."

Terming as "malafide propaganda" AAP's allegation that Aiyar had to go because he opposed RIL's move to raise KG-D6 capital expenditure 2.5 times, the company said Aiyar left the oil ministry in January 2006 while the revised USD 8.8 billion field development plan was submitted in October 2006.

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On allegations that Reddy was removed because he opposed higher gas prices for RIL, the company said, "It was Mr Jaipal Reddy (and not current Oil Minister M Veerappa Moily) who requested for the appointment of the Dr Rangarajan Committee in May 2012. It was on this committee's recommendations, the CCEA approved the revised gas prices (from April 2014)."

The Rangarajan Committee suggested that domestically produced gas should be priced at an average of global hub rates and the cost of importing liquid gas (LNG) into India.

According to this formula, the price of gas is being increased to about USD 8 per unit in April. The current rate of USD 4.205 per million British thermal units for gas from RIL's eastern offshore KG-D6 field expires on March 31.

"The prices had to be revised not because of the elections but because the prevailing price formula ceases to be valid with effect from April 1, 2014," RIL said in documents it released giving a detailed account of facts and arguments aimed at countering its critics.

On AAP's allegation that the price hike would result in a windfall of Rs 54,000 crore for RIL, the company said the new rates will raise the revenue earned on the country's entire gas production by Rs 26,000 crore.

"Of this increase, Rs 12,000 crore comes back to the government as royalty, profit petroleum, taxes and dividend. The share of RIL and its partners is only Rs 3,000 crore (not Rs 54,500 crore), which goes to meeting capital as well as operational costs before it can be counted as profit," it said.

Gas from KG-D6 barely makes up 15 per cent of the nation's entire production of the fuel.

Responding to an allegation that the cost of KG-D6 gas production was less than USD 1 per mmBtu, the firm said, "The cost of production as alleged is nothing but post-production costs between the well-head and delivery point, which in 2009-10 was estimated as USD 0.89 per mmBtu for that year."

Apart from the post-production cost of USD 0.89, expenditure is incurred on discovery, appraisal, development production and maintenance, it said.

"The figure was required because royalty on gas produced was to be paid at the well head value, whose value had to be derived by subtracting the post-well head cost (USD 0.89) from the approved price of USD 4.2 per mmBtu.

"Post-production cost between the well head and delivery point is only a small component of the total cost of production," RIL said.

To calculate the cost of production, in addition to the post-production cost between well head and delivery point of USD 0.89 per mmBtu, the expenditure incurred on discovery, appraisal, development production and maintenance will need to be considered.

These include the cost of drilling wells, production expenditure including work-overs, and exploration and appraisal spending.

Reacting to AAP's allegation that the government had offered wells to RIL, the company said no drilled wells or discovered fields were made available to companies through NELP (New Exploration Licensing Policy).

"KG-D6 was offered as a deep water exploration block with little data and no drilled wells with discoveries" and the company had put in its risk capital to find gas, RIL said.

RIL also said there was "not even an iota of substance" in the allegation that it deliberately reduced gas production and hoarded the fuel in anticipation of the higher price.

Hoarding is technically impossible. Any attempt to hold back production in an existing field immediately shows up in pressure anomalies in the affected wells.

"Each well is like the release valve of a huge pressure cooker where the oil and gas has literally been cooking for millions of years - hold back gas in one and the pressure difference is immediately apparent in the next. Simply put, if gas is being hoarded, pressure in all producing wells cannot decline uniformly because pressure decline is a sure sign that the pressure cooker is running out of steam," it added.