Govt gets firm with RIL, to tell KG oil buyers to deduct $115 m

The tough stand was taken after RIL failed to comply with the ministry’s May 2012 notice, asking RIL to compute the government’s share of profit petroleum after deducting the disallowed costs.

Written by Amitav Ranjan | New Delhi | Updated: June 25, 2014 5:57 am
It plans to issue a fresh notice to RIL on levying an additional penalty of 9 million on account of natural gas production shortfall from KG-D6 block for the financial year 2013-14. It plans to issue a fresh notice to RIL on levying an additional penalty of 9 million on account of natural gas production shortfall from KG-D6 block for the financial year 2013-14.

The Petroleum Ministry has proposed that state-run companies deduct $115 million from payment due to Reliance Industries Limited (RIL) from their purchase of crude oil and natural gas from KG-D6 block and deposit it in a government account. Simultaneously, it plans to issue a fresh notice to RIL on levying an additional penalty of $579 million on account of natural gas production shortfall from KG-D6 block for the financial year 2013-14.

The ministry estimates RIL should not be allowed to recover $1.797 billion towards costs incurred on the block until March 2013 as it produced less natural gas than it had guaranteed while seeking approval for a huge jump in block development expenditure in December 2006.

This reduction in cost recovery by RIL increases government’s share of profit petroleum by $115 million, which the ministry proposes to recover by instructing Chennai Petroleum, Hindustan Petroleum and GAIL India — buyers of KG-D6 crude and gas — to remit their payment directly to a government account.

The tough stand was taken after RIL failed to comply with the ministry’s May 2012 notice, reiterated in February 2014, asking RIL to compute the government’s share of profit petroleum after deducting the disallowed costs.

Documents also say that a notice would be issued to RIL for disallowing $579 million for 2013-14 and directing it to remit an additional $80 million to the government as the latter’s share of profit petroleum for that financial year.

In all, it estimates the total disallowed cost recovery until March 2014 at $2.376 billion that would force RIL to pay back $195 million as profit petroleum to the government for producing less natural gas than it had promised.

The proposal awaits the approval of the minister and would bring to an end the long-dragging penalty proceedings, first initiated in May 2012 when a claim to disallow $1.462 billion for a collective two years (2010-12) was issued. RIL had then invoked arbitration against the notice.

The ministry’s Exploration Division pushed for another notice to RIL that included cost disallowance for 2012-13 but was stopped by former minister M Veerappa Moily, who asked it to first check with the Law Ministry. Former solicitor general Mohan Parasaran’s opinion was that although the matter had been referred for arbitration, there was “no restraint on the government from proceeding in the manner as set out in the first penalty notice of May 2012”.

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    Reply
  2. I
    indian
    Jun 25, 2014 at 1:41 am
    And they said Modi was a crony capitalist. Proud of Modi
    Reply
  3. G
    Girish
    Jun 25, 2014 at 11:56 am
    not many see this.
    Reply
  4. H
    harun
    Jun 25, 2014 at 4:17 am
    If the Govt does go about doing it,hail Modi.Moily should be jailed for fraud
    Reply
  5. N
    Numbers
    Jun 25, 2014 at 8:01 am
    An increase in price from USD 4 to USD 8 per mmbtu will increase revenues by USD 500 million a year at current low production levels of 10 mmscmd and USD 4 billion a year, if the promised 80 mmscmd is achieved. Compare this to the one-time penalty deduction of USD 115 million.
    Reply
  6. P
    Prathap Valiavalappil V P
    Jun 25, 2014 at 4:34 pm
    Yes, Modi sarkar have the permission to be tough with Modi, from reliance
    Reply
  7. P
    Prathap Valiavalappil V P
    Jun 25, 2014 at 4:35 pm
    yes. He has the permission form Reliance to be tough. Hail Modi
    Reply
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