5 reasons why Kejriwal’s allegations on Reliance are wishy-washy

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5 reasons why Kejriwal’s  allegations on RIL are wishy-washy
While Arvind Kejriwal and his India Against Corruption (IAC) made forceful arguments involving Robert Vadra and DLF, his revelation on Reliance and allegations against the company hold little water. Here are a few reasons why it's a little "wishy washy" and lacks credibility.

1) IAC says that Reliance's attitude is, "hum to gas $14.2 par hi denge, lena hai to lo, nahin to jao."

The government over the years has failed to budge on increasing gas prices for Reliance's gas output and files have passed from the PMO's Office, Oil Ministry and CAG. According to a report in the Times of India, in a latest salvo, the ministry has even cancelled permit for laying four gas pipelines to a company owned by Mukesh Ambani.

Prices for gas output for the KG basin which Reliance is producing have been contracted at a price of $4.2 per million metric British thermal units. Gas prices have not been revised despite the fact that incremental output for Reliance could be unviable at current prices.

The price revision for gas comes up only in April 2014 and energy analyst have agreed that the current prices are low, considering the complexity of the reservoirs. If prices have not been revised to $14.2, where is the question of: "hum to gas $14.2 par hi denge, lena hai to lo, nahin to jao."

2) IAC says " In order to pressurize the government, RIL substantially reduced its production of natural gas."

Energy and technical experts have agreed that RIL has complex reservoirs and its reserves have been dropping sharply. In fact, according to a Bloomberg report Niko Resources Ltd. (NKO), which owns a 10 percent stake in the KG-D6 block, cut the estimate for its share of proved and probable gas reserves to 193 billion cubic feet as of March 31, according to a June 20 statement, which didn't provide year- earlier figures.

"In spite of advanced technology, reservoir uncertainties are part and parcel of the industry. While the Government's loss is only lower profits, the contractor stands to lose his investment," P. M. S. Prasad, ED, Reliance Industries said in an interview. More of his interview and why production declined can be read at: http://oilandgasindia.blogspot.in/


3) IAC says "RIL was supposed to produce 80mmscmd (more than 50% of the total demand) from 2009. However, they are producing just 27 mmscmd, almost a third of their commitment".

Reliance desperately tried to boost production and needed technical help. It sold its 30% stake in in KG-D6 and 20 other blocks to BP in order to harness technology. According to news reports the companies are working together to boost production. Why would a company sell stake in blocks that had abundance of reserves and hence were cash rich. After all, nobody would like to sell stake in gas rich blocks.

4) Natural gas has been a drag for Reliance

Natural gas has been drag for Reliance Industries and the stock has gone nowhere because of declining natural gas output from the KG basin. Why would a company keep production low when it could impact the stock price, which in turn could impact Mukesh Ambani's networth? In the last few years the Reliance stock has been an underperformer because of natural gas.

5) Reliance mainstay continues to be petchem and refinery business

Reliance's mainstay continues to be the refinery business and petchem and of course eventually it will be retail. Gas revenues from KG basin has lesser contribution and hence Reliance has already looked for exploration and production opportunities abroad. Over the years natural gas from the KG basin would be insignificant, unless Kejriwal thinks otherwise.

GoodReturns.in

Read more about: reliance industries
Story first published: Thursday, November 1, 2012, 8:56 [IST]
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