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NEW DELHI: Reliance Industries (RIL), India’s biggest company by market value, is unlikely to meet its previously-announced commissioning Top 10 oil producers
World’s top 10 oil producers  schedules for two key oil and gas projects, as depressed global fuel demand, the financial market turmoil and legal challenges to its plans force it to push back deadlines, company officials with knowledge of its plans say.

The refinery is likely to be commissioned in January 2009, rather than “ahead of the initial deadline of December 2008”, a target revealed by RIL and Reliance Petroleum (RPL) in July this year while announcing the first quarter results. Significantly, the press release issued after the second quarter made no reference to the December 2008 target. Gas supplies are also likely to commence in January 2009.

A Reliance spokesman, however, denied there was any delay in the commissioning of the refinery, saying it was on track “as per our stated schedule and we have completed 97% of the work”. Responding to the question on the likely changes in the timelines for the refinery, he said: “No refinery starts production at full throttle on day one. The refining capacity will be gradually increased over a period of time, and in a few months from initial start-up, the refinery will reach its full capacity.”

RIL subsidiary RPL is building a 5,80,000-barrels per day (bpd) refinery alongside an existing refining complex at Jamnagar in Gujarat. It also plans to start gas production at its Krishna Godavari basin in Andhra Pradesh.Both projects were set to be operational by the end of 2008 and have been long billed as major revenue generators for the group. The group has also announced ambitious plans for getting into the retailing sector and to set up tax-free special economic zones (SEZs) .

Officials said that while the refinery and gas projects, estimated to cost Reliance around $20 billion, had their funding well in place and are not facing any cash crunch, the group’s actions were aimed at reducing all unnecessary expenditure, as it rides out the storm in financial markets which has seen borrowing costs increase even for blue-chip companies. In case of RIL, the slippage is likely to be only marginal, a couple of months at most.

One company official, who asked not to be named, said that the senior management at Reliance was actively considering ways to “go slow” on projects in the wake of adverse market conditions and the rising cost of funds.
“The two projects — refinery and KG basin — are well-funded, but the company is looking at curtailing any new expenditure at this point. So, while large projects like retail or SEZ will be kept on a lower priority, even flagship projects will see some slowing down,” the official told ET.

RIL was also in no hurry to secure government approval for starting development work at its Mahanadi and Cauvery fields as part of the general “go slow” on projects, the official added.

Officials said that RPL’s export-oriented refinery was now likely to be on stream only by January and gas production from the Dhirubhai 6 (D6) block in the KG basin would start in the same month, provided courts lift the present stay on gas sales. The company had said in mid-September that the RPL refinery would begin production by November-December.

Analysts say that RPL faces a tough choice, as it cannot keep assets idle or sell products at a discount. Meanwhile, the economic slowdown in the US, the world’s biggest oil consumer which has cut demand for gasoline or petrol by more than 8%, presents RIL with a huge challenge to market its refinery products.

A second RIL official, who also asked not to be named, said that production at the new refinery would be ramped up in a “more gradual” manner keeping in mind the market conditions. The company is also in talks with the government for securing an exemption from paying taxes in case it decides to sell a part of its refinery output into the domestic market, the official said. Normally, export-oriented units that sell their products in the domestic market have to pay local taxes and excise.

The recent drop in international crude oil prices have taken a toll on most refineries around the world, but analysts and industry officials say that RPL’s refinery is better positioned than most refineries, as its configuration enables it to process very low-grade crude varieties, protecting its margins despite falling prices.

RIL officials said that while the main reason for the delay in gas production from the KG basin was a legal dispute over gas sales, the company had also decided to go easy on test trials of the pipeline meant to transport the gas. “The plan was to buy gas from GAIL and pump it into the pipeline for a test check. The gas would then be kept under pressure and pumped out to consumers when KG gas finally starts flowing. We are now looking at doing this closer to the production date,” the second official said.Read the economic times