Kripa Raman

The group will invest Rs 18,000 cr for pipeline from Kakinada

Recently in Kakinada

While Reliance Industries Ltd readies itself to produce natural gas by June 2008 in what it calls the fastest discovery-to-production schedule in the world, a key concern for the company is whether the opportunity for city gas distribution will be available to it by that time.

RIL, which discovered gas off the eastern coast in 2002, will start producing about 40 million standard cubic metres per day of gas by mid-2008. This output will be raised to 80 mscmd by the end of that year, said Mr P.M.S. Prasad, President and CEO (Oil & Gas), Reliance Industries.

Investment

The investment in discovery and development will be around $5.2 billion (Rs 23,400 crore). The RIL group (through Reliance Gas Transportation Infrastructure Ltd) will additionally invest nearly $4 billion (Rs 18,000 crore) in laying a nearly 1,400-km pipeline from Kakinada, the onshore facility, which will receive gas from the offshore fields, to Gujarat, where it will link to the existing distribution pipelines in the area.

Around 25 mcmd of RIL's production could be consumed in-house, for Reliance's own facilities. A substantial but unknown quantity will be fed to the pipeline that feeds the western, high-consumption region. But the rest of the production could take care of retail city distribution to about 20 million homes if regulations made this possible, according to Mr Prasad.

Retail business

"Retail is where the margins are, and it is natural that any gas supplier would eye this business," said another official.

According to Mr Prasad, what is in the way for RIL is the exclusivity provided to city gas distributors. According to him, exclusivity of pipeline network as well as of distribution is not a combination that encourages competition or offers any choice to the consumer.

"If merely the pipeline network were exclusive but offered on a non-exclusive basis to all, that would still be understandable," he said.

Currently Mumbai and Delhi have exclusive domestic gas distributors. Mumbai is supplied by Mahanagas Gas Ltd and Delhi by Indraprastha Gas.

RIL could use the same principle that it did when the group laid its fibre network across the country, getting the network laid through ` minimal invasion' of roads, by cutting small channels into them. "Various technologies are available for laying quick distribution networks," said Mr Prasad.

Distribution

State governments are ready to allow RIL city distribution, he said. Gujarat, Tamil Nadu and a couple of others have given RIL approval for city gas distribution on a non-exclusive basis. But the final permissions have to come from the Union Government, he said.

RIL can LPG cylinder equivalent city gas for Rs 200. This could at once eliminate the subsidy of Rs 100 per cylinder incurred by the Government while also making energy cheaper for the consumer, he said. "Or LPG can be moved to the smaller towns and villages where natural gas cannot reach."

FINANCES

The capital expenditure of $5.2 billion for the gas project will be raised partly through borrowings and the rest through internal accruals and deferred payments. An amount of $2 billion will be borrowed from international banks of other investors.

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