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Richa Mishra

New Delhi, May 12 Despite the favourable movement in the exchange rate, the likely windfall revenue gain for Reliance Industries Ltd (RIL) may not amount much in terms of the bottom line.

RIL has started selling gas from its prolific east coast asset at $4.2/mBtu at the landfall point. When the gas price was arrived at in 2007 the exchange rate was taken at Rs 45 a dollar. Today, the exchange rate is close to Rs 50. This is expected to result in some gains for the company.

The production sharing contract under New Exploration Licensing Policy (NELP) provides that all revenue and costs are to be accounted for in dollars. In line with this provision, the gas price approved by the Government was denominated in dollars. On these sales the company is expected to earn about $3.7 billion annually.

An RIL official told Business Line, “Since a major portion of the expense incurred in exploration and production is actually in dollars, any movement in exchange rate affects both revenues and costs. The exchange rate, as we know, has varied from Rs 39 to Rs 51 in the last two years, and it is natural that there can be both gains and losses due to expenses incurred and revenues earned at various points of time.”

However, to compute any forex gain over a defined period and conclude that there can be a windfall would be incorrect, the official said. “How can there be a windfall in our case as we have just started earning revenues whereas billions of dollars of expense were already incurred over the last year and this year, and are still being incurred,” he added.

RIL has made an investment of $5.2 billion for the phase-I development of D6 block and work is still going on. “The company is also spending at the current rate. For instances, the orders for various equipment were placed in 2006 and the payments have happened in fiscal 2008-09. Thus, we are making payments also at the current exchange rate,” he said.

“The price proposed by RIL to the Government was in rupee, and the prevailing exchange rate at that point of time was Rs 45. The empowered group of ministers after deliberations approved a price denominated in dollars. From then the rupee has appreciated to Rs 39 and also depreciated to over Rs 51. So to only look at the depreciated value and draw conclusions is totally unfair,” the official said.

In fact, not only NELP producers but others such as Cairn and joint venture fields such as Panna-Mukta-Tapti are required to maintain their accounts in dollars.

Once the company has recovered its capital cost in five-six years, the Government’s share from revenue generated will go up to 85 per cent, leaving the operator with the remaining 15 per cent, he said. “From this 15 per cent, the company will also have to fork out the operating expenses,” he added.

More Stories on : Petroleum | Outlook | Forex | Reliance Industries Ltd

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