With shareholder returns from the exploration and production (E&P) business trailing the cost of capital significantly, Reliance Industries (RIL) chairman Mukesh Ambani on Friday expressed hope that the government will address policy issues that have constrained exploration business in the country.

earnings before interest and tax (EBIT) contribution from the E&P business, at Rs 194 crore, is a mere 0.6% of RIL’s overall EBIT of Rs 31,835 crore.

“We are aware that the domestic E&P business, while creating huge economic value to the country, has generated shareholder returns lower than the cost of capital,” said Ambani. He noted that the low returns in E&P business were in sharp contrast to other domestic infrastructure sectors such as roads, fertilizers and power, where 12-16% returns are assured under the policy.

Ambani said the company was constructively engaged with the government to resolve legacy issues on matters such as cost of recovery and gas pricing, which have been dampeners for the business. He urged the government to get the risk-reward balance right and provide marketing and pricing freedom. “We are hopeful that the government will address this policy issue in the larger interest of attracting investments in the critical E&P business,” he told the gathering.

Ambani noted that within a short span of time, RIL and its partner BP have brought two challenging deep water fields in the KG-D6 block to production, which have so far substituted over $34 billion of energy imports. Nevertheless, he pointed that there was more value to be unlocked from 5-6 trillion cubic feet (tcf) of resources discovered at various stages of development, appraisal and approval.

Ambani said that in spite of falling oil and gas prices, the shale gas business in the US generated revenues of close to $1 billion in FY14. RIL has cut down its capex and divested its stake in the EFS Midstream asset, with a view to maximise profits.

To strengthen its refinery and petrochemicals business, RIL has also committed to invest Rs 1 lakh crore. With the deregulation of diesel, FY16 will see RIL recommissioning the entire network of petroleum retail outlets. “We plan to re-commission the entire network of petroleum retail outlets by the end of FY16. Currently, close to 400 outlets are operational,” he said.The company’s Jamnagar refinery processed 480 million barrels of crude in FY14, taking the total grades of crude processed so far to a record 144.

The chairman said that RIL continues to strengthen its global polyester leadership position by increasing capacity and continued focus on operational excellence. Last year, RIL commissioned a fully automated polyester plant at Silvassa with a capacity of around 400,000 tonne. RIL has also brought on-stream a 1.15 million tonne per annum of PTA capacity. “We will be ready for start-up of another 1.15 million tonne per annum of PTA capacity at Dahej by October this year. With this, RIL total PTA capacity will be 4.5 million tonne per annum, making it the fifth largest PTA producer in the world,’ Ambani said.

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