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RIL contract can’t be terminated: Moily to Prime Minister

Moily writes to PM that public firms ONGC and Oil India Ltd will the major beneficiary of hike in gas rates

Published: February 24, 2014 4:09:08 pm
File photo:  Petroleum Minister M Veerappa Moily at Parliament House in New Delhi. File photo: Petroleum Minister M Veerappa Moily at Parliament House in New Delhi.

Amidst controversy over gas price hike, Oil Minister M Veerappa Moily has told Prime Minister Manmohan Singh that Reliance Industries’ contract for KG-D6 gas fields cannot be terminated pending arbitration on issue of output lagging targets.

Moily in a 13-page letter to the Prime Minister explained the process, the contractual requirement and the steps followed for raising natural gas prices from April 1, without which several gas fields of both private sector firm RIL and state-owned ONGC would be economically not viable to produce.

Rebutting allegations by the AAP and its leader Arvind Kejriwal that the price increase was done to benefit RIL, Moily on February 14th wrote to Singh saying ONGC’s average cost of producing natural gas was about USD 3.6 per million British thermal unit in 2012-13 and its newer finds in deep sea cost more than the current rate of USD 4.2.

Public sector firms ONGC and Oil India Ltd (OIL) account for about 80 per cent of India’s gas production and will be the major beneficiary of gas rates going up from USD 4.2 to USD 8.

Kejriwal before resigning as the Chief Minister of Delhi had ordered the Anti-Corruption Bureau to register an FIR against Moily, RIL and its Chairman Mukesh Ambani for allegedly creating an artificial shortage of gas in the country and raising prices.

On gas production from RIL’s eastern offshore KG-D6 gas fields lagging targets since 2010-11, Moily told Singh about the process initiated by his predecessor S. Jaipal Reddy of penalising the firm by disallowing a portion of cost incurred.

While the contract provides for termination in case of a default by a contractor, Reddy in May 2012 had slapped penalty of USD 1.005 billion. RIL disputed the penalty and initiated arbitration.

“In view of the contractual provision under the PSC (production sharing contract), the government will not be able to terminate the contract on account of shortfall in production as the matter is pending before the arbitral tribunal,” Moily wrote.

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