Fairval

Notes on Indian equities, sectors and economy

RIL & the list of deafening silences

Posted by fairval on August 11, 2009

The oil and gas business of Reliance Industries gives an interesting example of why some skeletons don’t rattle, when it concerns RIL.

Ministries
The ex-ONGC chairman Mr Subir Raha wrote perhaps the most hard hitting, and well informed piece on the RIL-RNRL-MOP fued. It appeared in The Economic Times on 7th Aug 09, and anyone following this controversy should read it.
An interesting phrase Mr Raha used is ‘deafening silence’. Some excerpts –

There is deafening silence from one set of the interested parties: the power minister, his ministry and his company, NTPC. GoI-MoP is apparently committed to the three-monkey approach to life and times, and possible loss of 12 mmscmd gas @ $2.34 does not matter; after all, the regulator accepts cost of fuel as a `pass-through` item! Therefore, GoI-MoP is apparently conceding a walk-over to GoI-MoP&NG.

Another source of deafening silence is the ministry of finance. Petroleum minister is struggling to erase the figure of $2.34 everywhere, with the declared intention to maximise GoI revenue; GoI-MoF is quietly watching the game.

Analysts
I wonder why analysts haven’t asked some rather obvious questions. Let me give some examples. Found this in an analyst report –
On the deep-water exploration front, the company’s success rate is above 70%, which is substantially higher than the global average of 16%’.

My question is – 70% success rate: Is this merely luck? Certainly cant be skill, since RIL cant claim to be better than global oil giants in E&P.

Next, check this (from a Morgan report) –
RIL’s 80 mmscmd of gas implies an annual US$8 billion saving for the country, or replacement of close to 26mn tons of crude oil; that is as much as ONGC produces domestically’.
(wonder why is Morgan bothered here about ‘savings for the country’. This is typical RIL marketing speak)

My question – Is it really possible for a company to create an output of the size of ONGC in less than ten years?
My hunch is this – RIL’s 70% success rate can only imply, that there is a lot of oil and gas going around. This begets another question — Then why did ONGC not find it? Is there an oil import lobby at work? Ministers cant possibly take a kickback from a PSU, it is easier to take a kickback from the private sector, whether RIL or OPEC or an international oil supplier.

Political Parties
Am really surprised why is the opposition, particularly the left, so silent? After all, $4.2 per mbtu, RIL gains and public has to pay more for either fertilizer or power. I should imagine left should ask – why not gas at $1.5 per mbtu? If it is a national property, and RIL merely a contractor, then greater public good must be served.

RIL itself
And finally, the mother of all silences – RIL itself. RIL always tom toms its achievements, but is relatively silent on the E&P business. For ex, on the oil refining business, it keeps saying how its capital cost is the lowest in the world, how its GRMs are the highest in the world.
How come it is making no such statement here. Like has it said – cost of production of gas is lowest in the world? Or capex per mmscd of gas is the least in the world?

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One Response to “RIL & the list of deafening silences”

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