Reliance Industries has said it is being punished twice over — first by levy of a USD 1.78 billion penalty and then by being denied a gas price revision,for a single crime of not producing in line with projections that were not even contractual commitments.
RIL and its partner BP plc on September 18 made a detailed presentation to Oil Minister M Veerappa Moily on issues around its main D1&D3 fields in its eastern offshore KG-D6 block where output has fallen to less than a one-fifth to 10 million standard cubic meters per day instead of rising to 80 mmscmd.
Moily’s ministry sees production not meeting stated targets are breach of contract and has levied USD 1.786 billion in penalty by way of disallowing cost incurred in past three fiscal. Also,it plans to deny RIL benefit of new price after the current USD 4.2 expires in April next year.
“A double penalty to the contractor: On one hand cost recovery being disallowed on the other market price being denied,” RIL said in the presentation.
It said under the Production Sharing Contract (PSC),output figures in a development plan are only estimates and not commitments.
“There is no provision in the PSC that allows Government to penalise the contractor if production shortfall is caused by geological complexities,” it said adding the contract allows RIL to recover all its costs.
On move to disallow new USD 8.4 per million British thermal unit price for gas from D1&D3 fields,RIL said,”there appears to be significant contradiction to the government’s positions with regards to PSUs who have been granted a nearly 2.5 times price increase despite shortfall in production.”
RIL said geological surprise has led to decline in production and subsequent downgrading of reserves.
Stating that it had on numerous occasions requested to appoint an independent international expert to verify its claims,the company said,”Reluctance to appoint a third party exert despite repeated requests and delay in approval of revised field development plan has led to a negative propaganda perpetrated by detractors.”
The Directorate General of Hydrocarbons had in July recommended to the Oil Ministry that USD 781 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million cubic meters per day of gas as against the target of 86.73 mmcmd in 2012-13.
This will be in addition to USD 1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12.
Parallely,the Ministry is moving Cabinet to deny RIL a higher price of gas produced from D1&D3 fields till the dispute over the reasons for output not matching targets is resolved.
It wants the current rate of USD 4.2 to continue to apply for gas produced from Dhirubhai-1 (D1) and D3 fields even after expiry of the current term on March 31,2014.
The government had in late June approved pricing of all domestically produced natural gas at an average of international hub rates and actual cost of LNG into India from next fiscal. The new rate,according to this formula,would be around USD 8.4 per mmBtu.
The new rates were to apply uniformly to gas from RIL fields as well as those of state-owned ONGC. Now,the Ministry wants the old rates to continue for D1&D3 fields but the new price would apply to all other fields in the KG-D6 block including the currently producing MA oil and gas fields.