RIL's proposed hike in KG basin capex wins DGH backing
Upstream regulator appoints consultant to find a quick solution to the issue.
By TNN |
NEW DELHI: Director general of hydrocarbon VK Sibal has suo moto defended a 258% jump in RIL’s capital expenditure plan for producing gas from the D6 block in the KG basin. The upstream regulator has also appointed a consultant, P Gopalakrishnan, for a “quick evaluation” of RIL-Niko’s field development plan (FDP), who would submit the report by September 15. RIL’s capex for the project was revised to $8.84 billion (for 80 MMSCMD production) from $2.47 billion (for 40 MMSCMD).
“The contractors’ estimates of the revised investment is higher due to the increase in number of wells and production and pipeline facilities to produce a higher volume gas and also due to increase in price levels in global market for E&P operations,” Mr Sibal wrote to petroleum secretary MS Srinivasan. He was clarifying the “key” issue, which according to him, was misinformed by media.
According to the chief advisor (cost) in the department of expenditure, ministry of finance, capex is a critical factor for arriving at the profit sharing ratio between the contractor (RIL) and the government. The chief advisor said there was a need to “economise” cost of production and called for an independent cost evaluation by the government.
The media had reported that the finance ministry’s chief advisor (cost) had recommended that the government review the actual and the estimated cost of production and the profit sharing ratio in RIL’s KG Basin block (as opposed to an approval by the management committee) as it has a direct implications on the government’s profit sharing ratio.
The Cabinet Secretary had asked the chief adviser (cost) to review RIL’s KG basin project capex. DGH is one of the key members in the four-member management committee, which also has two representative of the contractor. Interestingly, the letter was written three days before the empowered group of minister is holding its first meeting to solve issues related to gas pricing and allocation.
In the letter, Mr Sibal said the FDP approval is for “discovery area & reserves; most efficient and beneficial way to bring out and timely use of the petroleum resources discovered and use of sound engineering, economic, safety and environmental principle.” “However, estimates of development cost ($8.84 billion in this case) and production cost etc are given by the contractor (RIL-Niko) as a supporting documents to enable techno-economic feasibility of the development plan,” he said.
He told the secretary that “in order to allay the fears of public” and as advised by petroleum minister Murli Deora, RIL’s production cost would be validated by “internationally reputed engineering consultant/company.” Besides Dr Gopalakrishnan, DGH is in the process of engaging a global consultant. “EOI notice was sent on 10.8.2007. It is expected that the work will be awarded shortly,” he said in the letter.
RIL’s revised capex plan, which has been approved by the management committee, has seen a 258% jump to $8.84 billion from the initial estimate of $2.47 billion. Although a significant part of the escalation is due to higher costs of rigs and drilling equipment, the revised development plan also shows an escalation of 252% in project management costs, which have increased to $324 million from $92 million.
“The contractors’ estimates of the revised investment is higher due to the increase in number of wells and production and pipeline facilities to produce a higher volume gas and also due to increase in price levels in global market for E&P operations,” Mr Sibal wrote to petroleum secretary MS Srinivasan. He was clarifying the “key” issue, which according to him, was misinformed by media.
According to the chief advisor (cost) in the department of expenditure, ministry of finance, capex is a critical factor for arriving at the profit sharing ratio between the contractor (RIL) and the government. The chief advisor said there was a need to “economise” cost of production and called for an independent cost evaluation by the government.
The media had reported that the finance ministry’s chief advisor (cost) had recommended that the government review the actual and the estimated cost of production and the profit sharing ratio in RIL’s KG Basin block (as opposed to an approval by the management committee) as it has a direct implications on the government’s profit sharing ratio.
The Cabinet Secretary had asked the chief adviser (cost) to review RIL’s KG basin project capex. DGH is one of the key members in the four-member management committee, which also has two representative of the contractor. Interestingly, the letter was written three days before the empowered group of minister is holding its first meeting to solve issues related to gas pricing and allocation.
In the letter, Mr Sibal said the FDP approval is for “discovery area & reserves; most efficient and beneficial way to bring out and timely use of the petroleum resources discovered and use of sound engineering, economic, safety and environmental principle.” “However, estimates of development cost ($8.84 billion in this case) and production cost etc are given by the contractor (RIL-Niko) as a supporting documents to enable techno-economic feasibility of the development plan,” he said.
ADVERTISEMENT
He told the secretary that “in order to allay the fears of public” and as advised by petroleum minister Murli Deora, RIL’s production cost would be validated by “internationally reputed engineering consultant/company.” Besides Dr Gopalakrishnan, DGH is in the process of engaging a global consultant. “EOI notice was sent on 10.8.2007. It is expected that the work will be awarded shortly,” he said in the letter.
RIL’s revised capex plan, which has been approved by the management committee, has seen a 258% jump to $8.84 billion from the initial estimate of $2.47 billion. Although a significant part of the escalation is due to higher costs of rigs and drilling equipment, the revised development plan also shows an escalation of 252% in project management costs, which have increased to $324 million from $92 million.
Start a SIP with as low as ₹500 with ET Money App!
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
