Gas valuation not independent, says RelPower

Gas valuation not independent, says RelPower

The Anil Dhirubhai Ambani group (ADAG) on Wednesday, alleged conflict of interest in naming the two experts who evaluated and validated the overstated capital cost of Krishna-Godavari gas fields, awarded to Mukesh Ambani’s Reliance Industries.

Reacting to the comments by the Directorate General of Hydrocarbons on Tuesday, the group said both the independent expert P Gopalakrishnan and global consultancy Mustang Engineering had conflict of interest with the Mukesh Ambani group.

“Gopalakrishnan serves the School of Petroleum Technology. Mukesh Ambani is its first President & Chairman of its board of governors,” said J P Chalasani, Chief Executive of Reliance Power, which is part of the Anil Ambani group.

Different view
“Is Gopalakrishnan independent? Does he have a conflict of interest? Was it disclosed at that point of time? If it was disclosed, the petroleum ministry and the regulator would have taken a different view of engaging him for validation,” Chalasani said.

Gopalakrishnan was a key expert, appointed by the directorate, who validated the capital expenditure of the Krishna-Godavari gas find. In the case of Mustang Engineering, Chalasani said it was part of the UK-based John Wood group, which Reliance Industries had proposed to buy in 2006. This agency, he said, was asked to evaluate and make field development plans, along with estimating the cost.

“Mustang has also been advising Reliance Industries on various other projects.”

The comments followed remarks by Director General of Hydrocarbons V K Sibal on the dispute over Krishna-Godavari gas, for which Reliance Natural Resources of Anil Ambani and his elder brother’s Reliance Industries are fighting a bitter legal battle.

Going further, Chalasani said the initial output of the gas from Krishna Godavari basin was estimated at 40 million units a day, and based on that, the capital expenditure was pegged at Rs.12,000 crore (around $2.5 billion). Subsequently, two years later, when the estimate of gas production was raised to 80 million units a day, the capital expenditure was pegged 268 percent higher at Rs.45,000 crore (nearly $9 billion), said the Anil Ambani group executive.

“Let us go beyond and see the reasonability of this. Normally when you see any production that goes up from 40 million units to 80 million, due to the economy of size, the capital expenditure will not get doubled - it will be more than 100 percent but below 200 per cent.”

He also questioned the position held by the regulator that inflating the capital expenditure does not benefit any stakeholder - neither the contractor, nor the government.

Contrary to that, Chalasani said, Reliance Industries is entitled to first recover its entire capital expenditure, based on the production-sharing contract, before the government gets any meaningful share of the reserves.

“As a result of higher capital expenditure, the government’s share gets reduced and the government’s share gets delayed.”

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