The Hindu : Business : Gas pricing: RIL wants early solution

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Wednesday, Sep 05, 2007
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Gas pricing: RIL wants early solution

Special Correspondent

Delay in approval will impact production schedule

NEW DELHI: Even as the CPI(M) has asked the Government to reject the “artificially high” gas price, Reliance Industries Ltd. (RIL) has warned that if the approval is delayed, production of natural gas from its eastern offshore Krishna-Godavari (KG-D6) fields would be delayed by two years as lenders were unwilling to fund the project.

In a communication to the Union Petroleum Minister, Murli Deora, RIL President and CEO (Petroleum), P. M. S. Prasad, said: “Lenders to the D6 project are insisting upon a clear picture of the revenue flows and have indicated that in the absence of such clarity, they would not be in a position to allow disbursement of funds.”

On May 18 this year, RIL had sought the Government’s approval for a price of $4.33 per million British thermal unit (mmbtu) for natural gas from its KG reserves. While the company maintained that the gas pricing was worked out through a transparent process, the approval did not come about as the power and fertilizer sector consumers viewed it as too high. The issue is now before an Empowered Group of Ministers (EGoM) for a solution.

In the event, Mr. Prasad noted that there was insecurity among the company’s contractors and vendors in view of the uncertainty over project funding. “Clarity on gas price is critical for the lenders, as RIL’s ability to repay the loans to the lenders would be largely dependent on revenues generated from the sale of gas,” he said.

In his seven-page letter, Mr. Prasad pointed out that as “only a four-month weather window is available for offshore installation”, delay in advance payments could lead to de-prioritising D6 over other projects by vendors and thereby adversely affect the completion schedule. “If the forthcoming weather window December 2007 to March 2008 is lost, it could result in delays by at least a year,” he said.

While production of gas from the D6 fields is slated to commence from July next year, RIL is apprehensive that the pricing and related uncertainties could result in a two-year delay. In fact, last week, RIL Chairman Mukesh Ambani held a series of meetings with lead lenders and contractors in a bid to persuade them to stay on with the project. Urging the Petroleum Minister for an early end to the gas pricing imbroglio, Mr. Prasad said: “The D6 project is at a critical stage of implementation and any delay in the project at this stage would result in adverse impact not only on the anticipated date of commencement of production but also the project itself”.

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