FOREX WORLD TREND

MUMBAI -- Reliance Industries Ltd. overstated its capital expenditure for the development of the Krishna Godavari gas fields, also known as the KG-D6 basin, a senior Reliance Power Ltd. executive said Wednesday.

"RIL has a substantial motivation to claim higher capex. Simply put, the more RIL claims to have spent on capital expenditure, the less the government gets of the revenue," said Reliance Power Chief Executive, Jayarama Prasad Chalasani.

A Reliance Industries spokesman declined to comment.

Mr. Chalasani said according to the production-sharing contract to develop the gas fields, RIL will recover its 450 billion rupee ($9.4 billion) capital expenditure through gas sales before the government receives any meaningful revenue share.

He said the potential loss to the government due to the inflated capital expenditure could be more than 300 billion rupees.

Reliance Power Ltd. is controlled by Anil Ambani, who also controls Reliance Natural Resources Ltd., which is locked in a legal battle with Reliance Industries, controlled by his estranged elder brother, Mukesh Ambani.

Their dispute centers on the price of gas from the RIL-operated KG-D6 basin off India's east coast.

RNRL wants to purchase the gas at $2.34 for each million British thermal units, while RIL wants to sell the gas at a state-mandated price of $4.20/mmBtu.

While the first round of their legal battle went to RNRL, with the Bombay High court upholding its stand on buying gas at the lower price, the case has been referred to the country's apex court, which will hear the matter Sept. 1.

A war of words between the government and RNRL over the KG-D6 issue began July 28 when Anil Ambani accused the oil ministry of favoring RIL in the court battle. Since then, oil minister Murli Deora has denied the government is taking sides, adding it is trying to protect its legal right of gas distribution.

Responding to Mr. Deora, Anil Ambani raised the issue of RIL inflating the capital expenditure on KG-D6 and under-producing gas to boost prices.

The upstream regulator, the Directorate General of Hydrocarbons, controlled by the oil ministry, said gas production will increase when more gas is allocated to various industries.

The DGH also said, "experts have validated the costs" of developing the gas fields.

It said capital expenditure has risen as reserves are higher than earlier estimates, which will also lead to increased peak gas output of 80 million standard cubic meters a day, compared with 40 mmscm/d earlier.

Mr. Chalasani said even if the production estimate has doubled to 80 mmscm/d, it is unlikely capital expenditure should almost quadruple to 450 billion rupees from the initial cost estimate of 120 billion rupees.

He said since the DGH has claimed the Comptroller and Auditor General of India has audited RIL's capital expenditure claims, the audit report should be made public.

—Rakesh Sharma in New Delhi contributed to this article.
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