Ministry seeks legal opinion on penalising RIL over gas output

The ministry of petroleum & natural gas has sought legal opinion on levying an additional penalty of $781 million on Reliance Industries Ltd for failing to produce pre-stated volumes of natural gas from its flagging D6 field in the Krishna-Godavari Basin in 2012-13.

Petroleum secretary Vivek Rae said on Thursday that the government has already issued a notice to RIL for a $1.005 billion penalty for the shortfall in production during 2010-11 and 2011-12. The Mukesh Ambani-run firm has initiated arbitration proceedings against the levy.

"We have already issued a notice for the penalty of $1 billion. For 2012-13, we are examining what needs to be done, whether the higher penalty is to be imposed and if so in what manner. We are seeking the advice of the law ministry right now," Rae told reporters on the sidelines of a function in New Delhi.

The Directorate General of Hydrocarbons had in July recommended to the oil ministry that $781 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million cubic metres per day of gas as against the target of 86.73 mmcmd in 2012-13.

This will be in addition to $1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12.

The arbitration has not begun because the two arbitrators appointed by RIL and the government are yet to agree on a neutral presiding judge for the proceedings.

Officials said since arbitration proceedings on the previous penalty issue are yet to commence, it was thought prudent to seek opinion of the law ministry on levying a further penalty.

The DGH blames RIL for not drilling its committed quota of wells for the fall in production that has resulted in a large chunk of production facilities lying unused or under-utilised.

RIL has built infrastructure to handle 80 mmscmd of output but is currently producing less than 14 mmscmd.

Under the production sharing contract, RIL and its partners BP Plc and Niko Resources are allowed to deduct all of the capital and operating expenses from sale of gas before sharing profits with the government.

Creation of excess or unutilised infrastructure impacts government's profit share and this is being sought to be corrected by disallowing part of the cost.

RIL and its partners have so far spent $5.768 billion in developing the Dhirubhai-1 and 3 (D1&D3) gas field in KG-D6 block and another $1.74 billion in the MA oilfield in the same area. Another $1.774 billion has been spent as production expenses or operating cost.

The ministry had in May 2012 slapped a notice disallowing $457 million of cost till 2010-11 and $1.005 billion till 2011-12.