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Reliance Net profit up 28% at Rs 3,264 Cr; Co may consider dropping $ 5.2 bln gas project on pricing delays

Tuesday, July 31, 2007

India's largest private company and index heavy weight Reliance posted higher than expected profit & sales in results decalred late Saturday evening. Both net profit and sales were above expectations. While the bottom line was up 28%. Reliance industries Q1 FY08 Net profit is up 28% at Rs 3,264 crore while Net sales are up 14.4% at Rs 28,056 crore.

Reliance industries Q1 Gross Refining margin stood at .40/bbl vs. /bbl (QoQ).Its refining margin is at 11.2% vs. 9.8%, petro chemical margin at 13.7% vs. 11.1%. Revenues were driven by 3% price hike, 10% volume growth; it has completed 65% of RPL project.

Mukesh Ambani, CMD of Reliance Industries says our world-class manufacturing facilities have demonstrated a high operating leverage. We continue to make rapid strides in our new initiatives including oil & gas, organized retailing and the new refinery at RPL. Our new initiatives provide us a platform to deliver superior shareholder returns in the future.

Meanwhile the FE reports that Reliance Industries may consider abandoning its $ 5.2 billion project for producing gas from the D6 block in the Krishna Godavari basin if the government does not approve the price formula by August end. The company had submitted the price formula to the petroleum and natural gas ministry on May 16. With no signs of any immediate decision on the issue, RIL has decided to do some tough talking with the government in the coming days.

Government officials said Mukesh Ambani, chairman, Reliance Industries Limited, was scheduled to meet petroleum minister Murli Deora on Monday to seek a specific timeline for approving the pricing formula for the D6 project. While the petroleum and natural gas ministry had cleared the formula, some other sections within the government including the department of fertilisers and the power ministry had raised objections demanding a much lower price for the user industries. As per RIL’s pricing formula, while the base gas price works out to $ 4.33 per million British thermal units (mmbtu), the delivered price ranges between $ 6 and $ 6.2 mmbtu.

A committee of secretaries (CoS) has been discussing the issue for over a month. The officials said the government was now planning to put in place a gas utilisation and a gas allocation policy (for fertiliser and power sectors) before the pricing formula is approved. This, they said, may take anywhere between four and six months. RIL plans to start gas production from the D6 block by June 2008. A delay in the approval of the pricing formula would definitely force the company to postpone its production plans. This, according to RIL was being perceived as a major risk by its international vendors and suppliers and lenders to the D6 project. The company has already communicated to the government that it was not correct to frame new policies at this stage of the contract.

When contacted, CEO and President (Oil and Gas) PMS Prasad said, “The government can raise any number of questions on the cost estimates, appoint external auditors or even ask CAG but it cannot hold back our sale price formula.”

"Our vendors and suppliers, who have committed their manufacturing facilities to us, doubt if the project would be implemented as per schedule," Prasad added. Unfortunately for RIL, there is no timeline specified for the government to approve the pricing formula since its production sharing contract is of NELP-I vintage. From NELP-2 round onwards, the government is required to clear the formula within 60 days.

Posted by FR at 2:54 AM  


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