Reliance to Spend $26 Billion Over 3 Years to Expand Businesses

Mukesh Ambani, the chairman of Reliance Industries Ltd. (RIL) announced recently that the company plans to spend 1.5 trillion rupees, the equivalent of about $26 billion, to expand their businesses over the next three years. These plans range from increasing the capacity of existing petrochemical plants they own, building new plants, and drilling more wells to counteract the recent slowing down of production.

In addition, RIL plans to open more retail stores and start a high-speed broadband internet service. Reliance is building its capacities in anticipation of a turnaround in the natural gas market, which has been declining for six straight years while Europe recovered from a debt crisis. The company plans to increase its petrochemical capacity by ten million tons, to a total of 25 million. They also plan to construct a plant to turn petroleum coke into synthetic gas, which will lower the costs at their refineries.

RIL shares dropped as much as 1.7 percent while Ambani gave his speech. The investment is the largest that the company has ever made, simultaneously investing in every one of its five branches, which are oil and gas production, refining, petrochemicals, telecommunications, and retail.

Sam Mahtani, the director of emerging markets at F&C Asset Management Plc (FCAM) commented that Reliance will face short term challenges with their plans, in particular the KG-D6 gas field. The KG-D6 field is supposed to be one of the biggest natural gas discoveries, but production fell 39 percent for Reliance in their last fiscal year. The company attributed that decrease to difficult geology. In addition, the current price of Reliance’s gas will be up for renewal next April, with pressure for Indian gas rates to match and average of United States, United Kingdom, and Japanese import prices. The new rates would just about double Reliance’s rates and, unfortunately for shareholders, the decision is in the government’s hands rather than the company’s.


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