Less than 24 hours before its annual general meeting, the Mukesh Ambani-led Reliance Industries Ltd reached out to its shareholders through a document titled ‘India has never been here before.
'Facts you did not know about KG-D6’.
“This compilation is an attempt to inform and debate with facts so that rhetoric and illogic don’t drown out the serious issue of India’s energy security,” RIL said.
In the 38-page report, across 10 chapters, RIL explained how it entered the exploration and production business; the history of the New Exploration and Licensing Policy and the introduction of production-sharing contracts.
“Strangely, the cabinet secretary, who was part of the approval process, has now filed an first information report, challenging the terms of the same PSC and demanding KG-D6 prices should be fixed not according to the market, but according to the cost of production!” RIL said.
It added in October 2002, it struck gas in D1-D3 field and in April 2009, began commercial production.
The company proposed a gas price formula under the provisions of the PSC.
The government approved the formula with modifications, resulting in a price of $4.205 per million British thermal units (mBtu).
The price was valid for five years, up to March 31, 2014.
In 2013, after extensive consultation and based on the recommendations of the Rangarajan committee, the government announced the Domestic Natural Gas Pricing policy 2014, which was to come into effect from April 1, 2014.
“This is now being portrayed as a windfall gain for RIL, whereas it is the government that will gain big in revenues.
"The price rise will increase the revenues earned on the country’s entire gas production by Rs 26,000 crore (Rs 260 billion).
Of this increase, Rs 12,000 crore (Rs 120 billion) comes back to the government as royalty, profit petroleum, taxes and dividend,” RIL says, adding, “The share of RIL and its partners is only Rs 3,000 crore (Rs 30 billion), not Rs 54,500 crore (Rs 545 billion) as is being alleged by vested interests, which goes to meeting capital, financial and operational costs before it can be counted as profit.”
In the document, the company says it has invested $12.6 billion in exploration, development and production and remains the largest investor under Nelp.
In a chapter titled ‘The contract that never was’, RIL says it never went back on the contract with NTPC.
“RIL did not renege on this offer.
"In fact, on December 14, 2005, RIL signed and sent a contract to NTPC to supply gas at $2.34 per mBtu.
"NTPC, however, insisted on the inclusion of open-ended uncapped liability conditions and, refusing to accept the offer, chose to go into litigation.
"The matter is currently sub judice in the Bombay High Court.”
RIL also questioned the theory of $1 per mBtu as its production cost from KG-D6.
“We are not sure where this $1/mmBtu figure has come from. This figure is incorrect.”
It said the letter referred to didn’t pertain to the cost of production, but was limited to post-production costs between the well-head and delivery point which, at that time (2009-10), was estimated at $0.89 per mBtu.
“The figure was required because royalty was to be paid at the well-head value,” RIL says.
Refuting the charges of gold-plating RIL says, “The CAG (Comptroller and Auditor General) for years 2006 to 2008 never once mentioned the word gold-plating.
"On the contrary, a forensic audit has already confirmed all expenses were incurred and the corresponding payments made to unrelated third parties.”
RIL ends the document with 10 questions, including whether it should be blamed for an increase in gas price by the government if its share in production was less than 10 per cent.
And, should exorbitantly high prices for imports be continued, making liquefied natural gas-exporting countries and Indian importers richer?
Image: Reliance Industries Chairman Mukesh Ambani