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With workovers on the main fields nearing completion, output from the Krishna-Godavari (KG) basin is expected to increase to 15 million standard cubic metres per day (mmscmd) from 12 mmscmd. This should have Reliance Industries (RIL) cheering, but it is not. Reason: the delay in the gas price revision and the depleting Dhirubhai-1 and 3 gas fields in KG block D6 have been weighing on the growth prospects of its upstream business. Doubts persist about the government coming up with a new gas pricing formula by November 15 — its latest and second deadline — given that the issue has been politicised to a large extent. The previous government had recommended a price of $8.4 per million British thermal units (mBtu) that was sought by RIL. Besides, the new price, when it comes, is likely to be less than $8.4 per mBtu. The lack of a new gas pricing formula is also preventing RIL from taking a call to develop other discoveries such as R-series, satellite and MJ1. “RIL can decide on investments on new discoveries only if the price is viable. Already, we have unrecovered exploration expenses on account of failed discoveries,” says a RIL official, not wishing to be identified. RIL and its partners, BP and Niko Resources, claim to have spent $7.4 billion for the exploration and development of blocks that were later abandoned. “In case prices are fixed on the basis of cost of production, the additional cost of $7.4 billion will also need to be reimbursed,” RIL’s ‘Flame of Truth’ report quoted it as saying. S.P. Tulsian, an independent analyst, however, says there is no need to increase the price of gas, as the contractor has recovered costs. “The later entrant, BP’s investment in these fields is a big mistake. They (RIL & BP) are trying to link cost recovery to the price, which is wrong,” he adds. RIL claims to have spent nearly $20 billion on exploration and production in India but recovered just around $8 billion. RIL and its partners have stopped exploration activities in most of their 41 blocks. KG D6 is their main production block with 15 wells. “D1 was expected to produce 60 mmscmd at the point of time. Now, it seems that both the fields will be exhausted in three years. RIL pins its hope on other three lucrative fields in the KG basin,” says the official. The gloom, however, is not shared by all. As per a UBS report, an increase in the gas price to $6.5-7.0 per mBtu from the current $4.2 will drive investments for developing R-series, MJ1 and commerciality approvals for satellite fields in KG-D6. UBS expects most issues to be resolved as the government is keen on increasing domestic production. For RIL then, the coming month will be crucial. (This story was published in BW | Businessworld Issue Dated 03-11-2014)
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In 2010-11, the revenue of Mangalore Refinery and Petrochemicals (MRPL) was Rs 30,000 crore less than that of its parent company, ONGC. Regular capacity enhancements at MRPL’s grassroot refinery, which was commissioned in 1988 with a 3 million tonne annual crude refining capacity, has helped bring down the gap to Rs 12,000 crore in 2013-14. At present, MRPL has the capacity to process 15 million tonnes of crude — up from 11.82 million tonne per annum — after the Rs 15,000-crore expansion drive over the past four years. In addition to improvements in production, the upswing in prices of refined products and higher export earnings due to an appreciating dollar have helped the company perform better.“A major concern for the company was its refining margins,” says P.P. Upadhya, managing director, MRPL. “We are past that hurdle. The complexity of the refinery has been improved to 10.5 from 5. As a result, the company’s gross refining margins have also improved to about $3 a barrel from $1.98.” Upadhya expects margins to go up at least by $2 a barrel in the first half of FY2015.Valued at Rs 71,810 crore, MRPL has been progressing at great pace — it recorded a compound annual growth rate (CAGR) in net sales of 22.4 per cent over the past four fiscals. Shell-MRPL Aviation Fuel & Services — a joint venture between Shell and MRPL that markets aviation turbine fuel — too performed well; its turnover rose 34 per cent in the last fiscal. This uptrend in the last fiscal marked a significant change in the company’s performance compared to the year before. In 2012-13, MRPL posted a net loss of Rs 757 crore as a result of a shutdown due to water shortage. During the year, the price of crude products also fell, resulting in inventory losses, lower operating margins, higher depreciation and interest costs. Upadhya believes the future of MRPL is bright. “By the end of this financial year, our upgradation projects will be complete; better margins can be expected thereafter.”Presently, MRPL is focused on direct marketing of petroleum products. In FY2012-13, its turnover from direct sales was Rs 3,750 crore, compared to Rs 2,755 crore in the previous year. With the government planning to decontrol diesel prices, MRPL is gearing up for a big retail push. (This story was published in BW | Businessworld Issue Dated 11-08-2014)
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After 116 years of operations, Tata Steel plans to start a second steel plant at Kalinganagar, Orissa, by March 2015. A dream project for the company, the six-million-tonne-per-annum (MTPA) integrated steel plant has, however, had a rather difficult start. Soon after construction began in 2004, the project sparked off a tribal agitation; as many as 13 people died in police firing. Thereafter, it has been mired in red tape. So, it wasn’t easy for Tata Steel to find financiers for the project — the cost of which has escalated from Rs 15,400 crore to Rs 43,149 crore on account of delays. Besides, the economy was in the dumps and the company’s European operations (formerly Corus) was also headed south. But State Bank of India (SBI) believed in the project and stepped forward to help. It, along with 20 other banks, including ICICI Bank, HDFC Bank, Axis Bank and Punjab National Bank, arranged a total of Rs 22,800 crore, making it the largest syndicated loan facility in India and earning it BW | Businessworld’s Deal of the Year award in the ‘INR Loans and Bonds’ category.Says Rajnish Kumar, chief general manager (project finance), SBI: “This was one of the largest projects handled by us in the non-infra sector. The team was excited about the deal. It has been a great learning opportunity for everyone involved.”Koushik Chatterjee, group executive director (finance and corporate), Tata Steel, says half of the first module of the Kalinganagar plant, which is to be rolled out in two modules of 3 MTPA each, has been completed with the company’s equity contribution of around Rs 10,000 crore. It has not drawn on the loan yet. “But you can’t build a steel plant without external funding. We will look at how much will be required for completing the project,” he adds.Macroeconomic conditions have been challenging over the past year. Additionally, the Indian market has been impacted by a sharp depreciation of the rupee. Despite these and the external challenges posed by the tightening of liquidity, increasing non-performing assets in the steel sector and mining restrictions, the Orissa project’s debt issue was oversubscribed. Tata Steel Odisha (TSOL), a special purpose vehicle (SPV) to facilitate the implementation of the Kalinganagar project, was created to derive the benefits of an SPV structure and reduce stress on the parent company’s balance sheet. It will procure the plant and machinery and lease them out to Tata Steel under an asset-lease structure — of a non-financial operating kind.At a time when demand for steel is falling, the plant has drawn considerable flak from various quarters. Answering questions from concerned investors at the 2013 annual general meeting, Cyrus Mistry, chairman of Tata group, said: “You can’t have growth without taking risks… The company has followed prudent financial discipline to mitigate the risks.”— (This story was published in BW | Businessworld Issue Dated 24-03-2014)
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