RIL's major investments will be in gas sector: Taneja

Mukesh Ambani, Chairman of Reliance Industries addressed the company's annual general meeting on Thursday. Ambani said the company would invest Rs 1 lakh crore across businesses over the next four years.

According to Narendra Taneja of Upstream, a major chunk of the proposed investment by the company will go into the gas sector. He said, "BP and Reliance probably want to do something together in India in terms of gas distribution, maybe setting up LNG facilities on the east coast. Probably the investment that Mr Ambani has talked about is going to be used largely for gas and maybe for building facilities such as infrastructure, LNG terminals and floating LNG terminals. I see the bulk of the investment that he has talked about going for that."

Taneja believes that Reliance has in a very subtle way admitted the massive problems faced by the company with respect to output from the KG-D6 block. However, he thinks there is some positive news coming in with talks of some revenue from Shale Gas.

Taneja compares Reliance Industries with India at the moment and feels that the two seem to be in more or less the same position, facing similar challenges. Just as the Indian masses and the world is trying to look at some optimism from India, Indian as well as overseas investors have huge expectations from Reliance, hence their challenges are quite akin to each other, explains Taneja.

"I find Reliance is facing more or less the same kind of challenges that India is facing as a whole. I found the Indian Prime Minister in his speech yesterday struggling to create the kind of optimism that India and the world expects from India. Reliance today was more or less in the same boat, in a sense that there are huge expectations from Reliance, not only from Indian investors but also from overseas investors," said Taneja.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.

Q: Especially on refining and exploration and the Shale Gas initiatives, targets announced, what were your key takeaways?

A: Basically it is free. Number one is if you look at D6, I think the company is indirectly, in a very subtle way admitting the massive problems they are facing even after bringing in a giant like BP. I think they didn’t want to make any big promises. They are basically toned down quite a bit when it comes to their projections and there is optimism. They had talked about it in the last three years and there was very little talk in town of how the reservoir or for instance, the production from the reservoir is going to look like.

Number two is I think the Shale talk was very good. He talked about some revenues which has started coming in but, at the same time we have to look at Shale Gas in terms of the ground realities in the US. The ground reality is, Shale Gas is a sunrise industry. At the same time, there are many questions, many issues and needless to say many challenges. I think Reliance is also realizing that.

Number three, when it comes to refining, I think that is a very interesting area. They talked about the kind of crude varieties they are trying to bring in, which they have always been doing but they are probably trying to be even more innovative in terms of sourcing, pricing etc. so that they can improve the GRM from their complex in Jamnagar.

Overall, if you look at these three areas, then of course I find Reliance is facing more or less the same kind of challenges that India is facing as a whole. I found the Indian Prime Minister in his speech yesterday struggling to create the kind of optimism that India and the world expects from India. Reliance today was more or less in the same boat, in a sense that there are huge expectations from Reliance, not only from Indian investors but also from overseas investors.

I find Mr Ambani has done a fantastic job today. But at the same time, I see him more or less in the same kind of chair, in the same kind of boat unless you get an external support, a huge support from the external environment, challenges remain. Good speech, but at the same time, Mukesh Ambani and Dr Manmohan Singh had more or less the same tone, the same kind of efforts and are in the same boat.

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Q: Just wanted to come to you with regards to a point that Mr Tulsian brought up on the gross refining margins (GRMs) where they are expected to use five new crude varieties to augment margins going forward, your analysis of that.

A: I think what they are trying to do is source more oil from countries or regions such as Latin America and north Africa, where they are diversifying into. If you look at Reliance, it is one of the smartest companies in the world when it comes to sourcing and trading of crude oil.

I think they are one of the finest. They have identified new suppliers ever since they have been reducing dependence on the Middle East, particularly on countries such as Iran. They have also reduced dependence on Iraq because there were some issues with Iraq since they have moved into Kurdistan. The northern part of Iraq and Baghdad is not terribly happy with this alliance. That is a different story. I think that is what they are trying to do.

But just allow me to make couple of points on the other like retail and 4G. I feel retail is going to take longer and it is very closely linked with overall growth and economic sentiments about India and in India.

When it comes to 4G, I think 4G is also more or less the same story in the sense that here we are not talking of telecom only. We are talking of value added products. 4G is all about value added products and who buys value added products? People who have got extra money or people who find value in products being offered buy it.

That again would depend on the overall economic growth of the country, especially those people from the middle class and those who basically want to get 4G services, either to make their life better or to make more money professionally. I think those two things are very closely linked with overall growth in our country.

When it comes to India, there are of course arguments that Indian growth story was in the past. Also when we are talking of the India story, it was closely linked with the global growth story. Looking at the overall picture, not only in India but all over the world, I think next two-three years are going to be challenging, especially when it comes to retail and 4G.

But, I see some very significant statements in terms of petrochemicals and refinery. BP and Reliance probably want to do something together in India in terms of gas distribution, maybe setting up LNG facilities on the east coast. Probably the investment that Mr Ambani has talked about is going to be used largely for gas and maybe for building facilities such as infrastructure, LNG terminals and maybe floating LNG terminals. I see the bulk of the investment that he has talked about going for that.

Q: You want to add to that?

A: If I am reading correctly between the lines, I think Mukesh Ambani has made it very clear that the relationship with BPL is going to get deeper and deeper. Probably, what we are going to see is the two companies joining hands to set up LNG facility in India very soon.

Reliance investing with BP in upstream projects overseas will be basically targeting oil, to bring that oil to the refining facilities of Reliance in India. I personally see more focus on that. I feel you would also see some kind of participation by Reliance in a country which has strong holds of BP in the Asian world. That is probably what I could read between the lines.

But going back to one important aspect, that is 4G, my reading is that the way they are perusing 4G, I wouldn't be surprised to find Reliance changing the overall structure of the project in such a way that it becomes more compatible and investors become happy.

One thing which has not come out very clearly is that in the last 7 months, Reliance has gone through massive internal structural changes, which Reliance's chairman probably didn't want to talk about. But by the time Reliance goes for the next AGM, they may be talking about it.

I think through these internal structural changes they are trying to bring out a new company and probably we are to see this in a couple of years, with a lot of focus on energy and other services that they have talked about.