The Hindu : Business : ‘Clean chit to RIL gas field cost’

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Friday, Mar 21, 2008
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‘Clean chit to RIL gas field cost’

Sujay Mehdudia

Independent international auditors put the cost at $9.035 billion

NEW DELHI: Virtually putting an end to the raging controversy, independent international auditors are learnt to have given a “clean chit” to Mukesh Ambani owned Reliance Industries (RIL), regarding inflation of gas field development cost.

Official sources said that the proposed $8.836 billion gas field development cost of RIL had been validated by independent auditors who have certified that the investment is not gold-plated and is well below their own estimates.

Source said Houston-based Mustang International, which was asked by the Government to audit the capital expenditure prepared by RIL for the Dhirubhai-1 and 3 gas fields in block KG-D6, put the cost for such field development at $9.035 billion. Mustang, a member of the Wood Group of the U.S., presented a voluminous analysis of the field development plan, which was compared with international cost to make a detailed report.

RIL had in an initial field development plan (FDP) estimated cost of producing 40 million standard cubic metres a day of gas from the two fields at $2.321 billion. It later revised the FDP to $5.197 billion in phase-I lasting 2008-end and a further $3.639 billion in phase-II on account of more number of wells and associated gas handling. However, the increase in cost was seen as inflation of cost by some sections, prompting the Government to order an independent validation.

Higher royalty

PTI reports

The increased cost was on account of higher royalty to be paid to the Government. In the initial FDP, RIL had anticipated payment of $561 million royalty at a gas price of $2.49 per million British thermal unit. But in the revised FDP, the Government’s royalty take was put at $2.579 billion at a gas price of $4 per mBtu. The Government’s share of profit has also gone up from $542 million to $6.563 billion, sources said.

The increased cost was also on account of 200-350 per cent jump in rig hiring charges, doubling of support service cost and up to 90 per cent increase in steel and fabrication cost. Mustang International was paid $1,75,000 for the validation exercise.

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