In the face of severe criticism over the $6.3 billion increase in the capital expenditure cost of its mega gas field – D6 in the KG basin, Reliance Industries Ltd (RIL) has submitted details of the $6.3 billion increase in development cost of the project. The justification comes close on the heels of the government?s decision to get the capex cost of RIL?s D6 gas field vetted by an independent expert.
In its letter to the ministry, RIL said that it was open to any government audit under the provisions of the production sharing contract (PSC) and added that the campaign against it for ?gold plating is being carried out by vested interests to derail the project.?
It may be noted here that the initial development plan submitted by RIL in 2004 had estimated a capex of $2.47 billion for 5.3 trillion cubic feet of recoverable reserves and a peak production of 40 million standard cubic metre of gas per day (mmscmd). Later, following additional discoveries in D6, RIL announced the doubling of the estimated recoverable reserves to 11.3 tcf and peak production to 80 mmscmd, with the revised capex at $5.2 billion. An expenditure of $8.8 billion was quoted as the life-cycle capex by RIL in the revised plan.
?The cost escalations were not unique to India or RIL?s D-6 and the trend was across the globe. The cost of drillships went up by almost 300% while steel prices increased by 86%. The cost of development wells itself increased by $0.7 billion while facilities increased by $1.9 billion. Rig hire charges rose by almost 300% as did the costs of facilities like pipelines, subsea control systems, vessel mobilisation and demobilisation. These costs alone would have been sufficient to double the initial plan itself to $5 billion prices without any change in the development work programme,? RIL wrote in the letter to the ministry.
The additional component of $2.9 billion has been attributed by RIL to the increase in reserves and production level. ?The cost for the incremental production rate of 40 mmscmd is only $2.9 billion, which is 42% lower compared to the $5 billion for the first 40 mmscmd,? RIL said, adding that its D6 project has been benchmarked by independent experts like Goldman Sachs to be the lowest in the world.