Government slaps $1.55 billion penalty on Reliance, BP and Niko for migrating natural gas from ONGC block

A committee had said that Reliance Industries action of migration of natural gas and the subsequent profits from it was an act of 'unjust enrichment'.

By: PTI | New Delhi | Updated: November 4, 2016 6:23 pm
Reliance Industries, RIL, RIL natural gas, ONGC, ONGC KG basin, KG basin natural gas, ONGC Reliance dispute, Dharmendra Pradhan, Reliance, Reliance group, Reliance Industries, RIL, ONGC, Reliance oil, Reliance gas, business news The task of deciding the penalty was given to the Directorate General of Hydrocarbons (DGH) which is the technical wing of the petroleum ministry.

Government has slapped a USD 1.55 billion demand on Reliance Industries and its partners BP and Niko for “unfairly enriching” by producing natural gas belonging to state-owned ONGC, a move that is most likely to land in arbitration.

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The oil ministry on November 3 issued a notice to all the three partners seeking USD 1.47 billion for producing 338.332 million British thermal unit in seven years ended March 2016.

After deducting USD 71.71 million royalty paid on the gas produced and adding an interest at the rate of Libor plus 2 per cent totaling USD 149.86 million, a total demand of USD 1.55 billion was made on RIL, BP and Niko.

Originally, ONGC had sought suing RIL and seeking compensation for the gas that had migrated from its blocks KG-DWN-98/2 (KG-D5) and Godavari PML in the KG basin in the Bay of Bengal to neighbouring KG-DWN-98/3 (KG-D6) block of RIL and produced by the private company.

The government had appointed a one-man committee under retired Justice A P Shah to go into the issue. The panel in its report on August 29 felt that the government and not ONGC is entitled to compensation.

Subsequently, the ministry asked its upstream technical arm DGH to calculate the amount of compensation and a demand notice has now been slapped on RIL-BP-Niko.

“The committee has concluded that the contractor’s (RIL- BP-Niko) production of migrated gas and retention of ensuing benefits amounts to unjust enrichment, since the production sharing contract (PSC)… does not permit a contractor to produce and sell migrated gas,” the demand note said.

The ministry said it had accepted the Shah committee report and consequently “it has been decided by the government to claim restitution from the contractor of the block KG-DWN- 98/3 for the unjust benefit received and unfairly retained by them”.

The notice also sought USD 177 million in profit petroleum from the partners after the government disallowed certain costs previously for KG-D6 output not matching targets.

Since both the ministry as well as the Shah panel had cited provisions of the signed PSC between the patners and the government, the issue may be headed for arbitration.

RIL contests that it had knowingly produced any gas belonging to ONGC as all the wells it drilled were within the boundary walls of KG-D6 block and with explicit permission of the government.

While RIL and partners are likely to contest the compensation claim, arbitration is likely to be resorted to as that is the dispute resolution mechanism set out under PSC for settling any differences between the government and a private contractor.

The cost disallowance issue is already under arbitration.

RIL did not offer any immediate comments but a BP spokesperson said: “We have received a letter from the government on the issue of migration of gas from the neighboring block. We believe resolution of such geological boundary disputes should be based on well-established international petroleum industry practices and in line with the PSC.”

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  1. S
    Nov 4, 2016 at 10:43 am
    Is this how people make money and acquire status as the richest person ? This is 'thuggery'.
    1. A
      Nov 4, 2016 at 8:59 am
      In simple terms this is theft by India's richest man. That 's how these crooks get rich. No wonder is is Modi's pal. Now let's wait and see the govt capitulating and letting A go with just a small fine.
      1. A
        Nov 4, 2016 at 9:37 am
        Just wait and see. Gujjubhai will bail out Gujjubhai. Crooks always band together.
        1. B
          Nov 5, 2016 at 1:07 pm
          Ambani does just migration of gas.And for common man we call it STEALING.
          1. B
            Nov 5, 2016 at 1:09 pm
            And govt policies indicate a neutral position towards corporates and its admirable.
            1. K
              Nov 5, 2016 at 4:33 pm
              It is easy to slap a fine and get slapped back while collecting that fine. The rich make money only through three qualities, Hard work, Crookedness and take no prisoner atude. The government is full of s, the courts are still another aspect that lets corruption go on,. What fines have been levied are seldom what is collected.
              1. A
                ASHOK KUMAR
                Nov 4, 2016 at 9:40 am
                Can Supreme Court take suo moto cognisance of the matter and charge all concerned criminals like Mukesh Ambani , Manmohan Singh, Murli Deora etc. under Sec 420 of IPC by setting up Fast Track Courts to decide the matter. Otherwise, Modi another friend of Mukesh Ambani will try to linger on the matter till 2019.
                1. H
                  Nov 4, 2016 at 9:02 am
                  1.55 Billion is 10500;br/gt;lt;br/gt;CAG had made out in KG Basin 30000 crore in increased cost on Capital expenditure was made;br/gt;lt;br/gt;RIL refused audit by;br/gt;lt;br/gt;RIL given repeated hike in Natural gas price by the CEA under Pranab and the same was continued by Modi;br/gt;lt;br/gt;Just suck it all up.RIL will go to Court and nothing will happen
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