Government slaps RIL, partners with $1.55-bn penalty

The ONGC-operated hydrocarbon blocks KG-DWN-98/2 and the Godavari PML (Production Mining Lease) shared a common boundary with KG-DWN-98/3 operated by RIL-BP-Niko on the KG-D6 basin.

By: ENS Economic Bureau | New Delhi | Updated: November 5, 2016 4:07 am
Reliance, Reliance Industries Ltd, RIL, Reliance penalty, BP penalty, Niko penalty, ONGC, Krishna-Godavari basin, india news The government has given RIL, BP and Niko 30 days to respond to its November 3 letter.

THE government has slapped a $1.55-billion penalty on Reliance Industries Ltd (RIL) and its partners BP and Niko for producing gas out of state-owned ONGC’s share in the Krishna-Godavari basin. The ONGC-operated hydrocarbon blocks KG-DWN-98/2 and the Godavari PML (Production Mining Lease) shared a common boundary with KG-DWN-98/3 operated by RIL-BP-Niko on the KG-D6 basin.

WHAT ELSE IS MAKING NEWS

The claim by the Ministry of Petroleum and Natural Gas is based on the recommendations of the AP Shah committee that confirmed migration of gas from the ONGC block to the RIL-operated block. In a late-evening statement, RIL said the government’s claim was based on a misreading and misinterpretation of the production sharing contract.

The government has given RIL, BP and Niko 30 days to respond to its November 3 letter. “RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government. RIL remains convinced of being able to fully justify and vindicate its position that the Government’s claim is not sustainable,” the company said. RIL owns 60% in the block KG-DWN-98/3, with BP and Niko holding 30% and 10%, respectively.

The government had set up the Shah committee further to a report submitted by D&M, a US-based consultant offering reservoir appraisal and field development planning services, which undertook an independent third party study following its agreement with RIL and ONGC. The study was coordinated by Directorate General of Hydrocarbons. D&M, in its report, indicated connectivity and continuity of reservoirs and also quantified the volume of gas migrated.

The Shah committee which also looked at the D&M report concluded that RIL’s production of migrated gas and retention of benefits gained from that amounted to unjust enrichment. Further, the committee noted that it was for the government and not ONGC to claim restitution (restoration of something lost or stolen to its proper owner). It was for the government to decide the quantum of migration, the committee said.

According to RIL, it worked within the boundaries of the block awarded to it in carrying out petroleum activity and “has complied with all applicable regulations and provisions of the Production Sharing Contract… The liability of the contractor has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary.”

RIL contended that the contractor is restricted to producing only that quantity of hydrocarbon as existed at the point in time when the PSC was signed according to the government. “This approach overlooks the fundamental fact that at that stage the work of exploration of the block has not even commenced and a complete lack of data makes it impossible to estimate the quantity of hydrocarbons available in the block,” it said in the statement.

COUNTDOWN TO PENALTY

July 22, 2013: ONGC wrote to DGH pointing to continuity of its and RIL gas pools

July 3, 2104: RIL-ONGC agree to appoint D&M to undertake independent study

November 30, 2015: D&M points to connectivity of ONGC & RIL blocks

December 15, 2015: Ministry sets up one-man AP Shah committee

* Shah committee submits report on August 31, 2016; finds RIL benefited from ‘unjust enrichment’, asks govt to quantify migration, says restitution can be claimed by govt