Indianpetro, conducted an exclusive interview with PMS Prasad, the
President and CEO (Oil & Gas) of Reliance Industries Ltd (RIL) on the controversy surrounding the pricing of gas from the D-6 block. The following are the excerpts:
Q. It is claimed that Reliance Industries did not follow a competitive route to price determination?
PMS: We followed the guidance from the ministry. The idea is to arrive at a gas price affordable for power and fertilizer sectors. If I were to include them (refineries and City Gas Distribution projects) in my universe and then try to discover a price, then the price would have been much higher than offered by power and fertilizer units.
Q. You were restrictive even within the power and fertilizer sectors?
PMS: We targeted whoever is ready to consume gas by mid-2008 and who are connected to the pipeline. We have not done limited bidding, we only limited the bids to make the price affordable to the two sectors (Power and Fertilizer).
Q. If you hadn't restricted your bids, you would have got a better price?
PMS:I have a letter from a power producer based in Andhra Pradesh saying he is willing to pay $6/MMBTU and there is Pragati Power in Delhi which has contracted gas at $9/MMBTU and another PSU oil company has requested us to supply so much volume as possible at a delivered price of $8/MMBTU. By laws of open bidding, I will have to give them the volumes first. Under the PSCs, we have marketing freedom. But we are not invoking it, as we want to align ourselves with the country’s priorities. What is good for India is good for Reliance.
Q. It is claimed that the pricing was not determined through arms' length negotiations?
PMS:Tell, me whether Tata Power, Torrent, Mahagenco, GVK, Konaseema, RCF, Chambal or IIFFCO or KRIBHCO or Nagarjuna... are they related to us. Am I not meeting the criteria of arms' length sales and the valuation criteria laid down by the government? So where have I gone wrong?
Q. There is an allegation that higher price paid for Reliance Industries gas would result in an escalation in subsidies, particularly to the fertilizer industry?
PMS: Fertilizer companies like Nagarjuna are replacing naphtha (which is significantly more expensive). How can subsidies go up? Three fertilizer plants of NFL use fuel oil at $12/mmbtu. Now, we will replace this with gas at $6/mmbtu, so how can the subsidy go up?
Q. Has Reliance Industries gold plated its costs in the D-6 block?
PMS: See what happened in the Kashagan in Kazakhstan -- shallow offshore block. The capital expenditure went up from $57 billion to $136 billion. I have committed a certain work programme when we took up the block for exploration and at that time we also estimated certain expenditure. Today we are spending three times that expenditure to fulfill the same work programme, the same exploration work. I am the one who should be complaining. If I spend the money and then the government thinks I have gold-plated, then they can audit, they can do anything, this is only a cost estimate for validation purpose. They have not even approved my total capital budget, the budget is approved on a year by year basis, it will be approved over 20 years, if not 20, then may be over 15 years.
Q. What are your views on an independent audit of your capital expenditure?
PMS:Reliance has no problem with any independent auditing. We want to be transparent.
Via: IndianPetro
Interviewed by Nishit Shukla
President and CEO (Oil & Gas) of Reliance Industries Ltd (RIL) on the controversy surrounding the pricing of gas from the D-6 block. The following are the excerpts:Q. It is claimed that Reliance Industries did not follow a competitive route to price determination?PMS: We followed the guidance from the ministry. The idea is to arrive at a gas price affordable for power and fertilizer sectors. If I were to include them (refineries and City Gas Distribution projects) in my universe and then try to discover a price, then the price would have been much higher than offered by power and fertilizer units.
Q. You were restrictive even within the power and fertilizer sectors?
PMS: We targeted whoever is ready to consume gas by mid-2008 and who are connected to the pipeline. We have not done limited bidding, we only limited the bids to make the price affordable to the two sectors (Power and Fertilizer).
Q. If you hadn't restricted your bids, you would have got a better price?
PMS:I have a letter from a power producer based in Andhra Pradesh saying he is willing to pay $6/MMBTU and there is Pragati Power in Delhi which has contracted gas at $9/MMBTU and another PSU oil company has requested us to supply so much volume as possible at a delivered price of $8/MMBTU. By laws of open bidding, I will have to give them the volumes first. Under the PSCs, we have marketing freedom. But we are not invoking it, as we want to align ourselves with the country’s priorities. What is good for India is good for Reliance.
Q. It is claimed that the pricing was not determined through arms' length negotiations?
PMS:Tell, me whether Tata Power, Torrent, Mahagenco, GVK, Konaseema, RCF, Chambal or IIFFCO or KRIBHCO or Nagarjuna... are they related to us. Am I not meeting the criteria of arms' length sales and the valuation criteria laid down by the government? So where have I gone wrong?
Q. There is an allegation that higher price paid for Reliance Industries gas would result in an escalation in subsidies, particularly to the fertilizer industry?
PMS: Fertilizer companies like Nagarjuna are replacing naphtha (which is significantly more expensive). How can subsidies go up? Three fertilizer plants of NFL use fuel oil at $12/mmbtu. Now, we will replace this with gas at $6/mmbtu, so how can the subsidy go up?
Q. Has Reliance Industries gold plated its costs in the D-6 block?
PMS: See what happened in the Kashagan in Kazakhstan -- shallow offshore block. The capital expenditure went up from $57 billion to $136 billion. I have committed a certain work programme when we took up the block for exploration and at that time we also estimated certain expenditure. Today we are spending three times that expenditure to fulfill the same work programme, the same exploration work. I am the one who should be complaining. If I spend the money and then the government thinks I have gold-plated, then they can audit, they can do anything, this is only a cost estimate for validation purpose. They have not even approved my total capital budget, the budget is approved on a year by year basis, it will be approved over 20 years, if not 20, then may be over 15 years.
Q. What are your views on an independent audit of your capital expenditure?
PMS:Reliance has no problem with any independent auditing. We want to be transparent.
Via: IndianPetro
Interviewed by Nishit Shukla
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