New Delhi: Reliance Industries has warned of a two-year delay in commencing natural gas production from its eastern offshore KG-D6 fields as lenders are unwilling to finance the project over delays in gas price approval.
“Lenders to the D6 project are insisting upon a clear picture of the revenue flows and have indicated that in the absence of such clarity, they would not be in a position to allow disbursement of funds,” RIL president & CEO (Petroleum) P M S Prasad has written to petroleum minister Murli Deora.
RIL had on 18 May 2007 applied to the government for approval of a price of $4.33 per million British thermal unit, which it said was discovered through a transparent process, but was stuck since consumers in the power and fertilizer sectors opposed it as too high. A group of ministers is now looking into the matter.
“Clarity on gas price is critical for the lenders, as RIL’s ability to repay the loans to the lenders would be largely dependent on revenues generated from sale of gas,” Prasad wrote, adding uncertain project finances had created insecurity among the contractors and vendors.
Delay in advance payments could result in vendors de-prioritizing D6 over other projects, adversely impacting completion schedule as “only a four-month weather window is available for offshore installation”.
“If the forthcoming weather window of December 2007 to March 2008 is lost, it could result in delays by at least a year as the next weather window would be available only in December 2008,” it said.
Gas production from the KG-D6 fields is scheduled to begin from July 2008, but the company fears there could be a two-year delay due to these factors.