Fresh look at RIL's KG capex rise
The government has turned down the Directorate General of Hydrocarbons (DGH) recommendation to appoint US-based consultant Degolyer and MacNaughton (D&M).
By TNN |
MUMBAI: The government has turned down the Directorate General of Hydrocarbons (DGH) recommendation to appoint US-based consultant Degolyer and MacNaughton (D&M) to evaluate Reliance Industries’ (RIL) proposed three-fold increase in capital expenditure to $8.6 billion from $2.4 billion for the KG-D6 development project. The move assumes significance as the government had reservations about D&M, because the company was engaged by RIL for doing work on the same project.
Citing reasons for not appointing D&M to evaluate RIL’s revised capex plan of $8.6 billion, a senior petroleum ministry official told ET, “The ministry has reservation on the proposed engagement of D&M in terms of potential conflict of interest, as apparently the firm has done some work in relation to KG-D6 block for RIL itself.”
The petroleum ministry has directed the upstream regulator to take immediate action to appoint another international firm of repute to evaluate RIL’s increased capex plans. The firm should also not have any conflict of interest with the operator (RIL). The ministry has also directed DGH’s office that the appointment of the independent expert and the evaluation should be done without any further loss of time. When contacted, DGH director general VK Sibal declined any comment. The government has been criticised for the approval given by the management committee under the production sharing contract (PSC) to increase the capital expenditure to $8.2 billion from $2.4 billion for KG-D6.
RIL attributes the increase in capex to more than doubling of rigs and services costs in the past two years. Also, the production from the field has increased dramatically to 80 million metric standard cubic meter per day (mmscmd) from the earlier 40 mmscmd. The issue of KG-D6 development cost was raised during the Committee of Secretaries (CoS) and Economic Advisory Council (EAC) meet held to deliberate on the pricing of gas from RIL’s KG basin block. Any increase in capital expenditure by operators has a direct impact upon profit sharing with the government in terms of reduced profits.
Citing reasons for not appointing D&M to evaluate RIL’s revised capex plan of $8.6 billion, a senior petroleum ministry official told ET, “The ministry has reservation on the proposed engagement of D&M in terms of potential conflict of interest, as apparently the firm has done some work in relation to KG-D6 block for RIL itself.”
The petroleum ministry has directed the upstream regulator to take immediate action to appoint another international firm of repute to evaluate RIL’s increased capex plans. The firm should also not have any conflict of interest with the operator (RIL). The ministry has also directed DGH’s office that the appointment of the independent expert and the evaluation should be done without any further loss of time. When contacted, DGH director general VK Sibal declined any comment. The government has been criticised for the approval given by the management committee under the production sharing contract (PSC) to increase the capital expenditure to $8.2 billion from $2.4 billion for KG-D6.
RIL attributes the increase in capex to more than doubling of rigs and services costs in the past two years. Also, the production from the field has increased dramatically to 80 million metric standard cubic meter per day (mmscmd) from the earlier 40 mmscmd. The issue of KG-D6 development cost was raised during the Committee of Secretaries (CoS) and Economic Advisory Council (EAC) meet held to deliberate on the pricing of gas from RIL’s KG basin block. Any increase in capital expenditure by operators has a direct impact upon profit sharing with the government in terms of reduced profits.
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