Oil ministry dumps RIL’s $380-mn investment claim, seeks $51.6 mn profit share

The ministry of petroleum has discarded Reliance Industry's claims of $380 million (Rs2,500 crore) investment in its Krishna-Godaveri basin gas block in the 2014-15 fiscal, for producing far less the quantity of gas than it had said it would, and instead sought $51.6 million as extra profit share for the year.

Against the targeted production of 80 million cubic meters per day (mcmd) of gas at the Dhirubhai-1 and 3 gas fields in the K-G D6 eastern offshore block, as per the profit sharing agreement, actual production has been declining from 35.33 mcmd in 2011-12 to 20.88 mcmd in 2012-13 and to 9.77 mcmd in 2013-14. The annual output has been around 8 mcmd since then.

In a regulatory filing with stock exchanges, the Mukesh Ambani-led firm said the ministry did not allow it to recover part of its investment in the infrastructure for bringing the KG-D6 block into production.

The latest rejection of investment claims take the total penalty on RIL for not producing gas allocated to it more than six years ago to $2.75 billion.

RIL is contesting the disallowance of investment claims for five fiscals beginning 1 April 2010 through arbitration.

"Up to financial year 2013-14, the cost recovery proposed to be disallowed was $2.38 billion and consequent demand of government of India share of additional profit petroleum of $195.3 million on cumulative basis. On June 3, 2016, the company received a revised claim up to year 2014-15 with a disallowance of $2.76 billion on cumulative basis and consequent demand of government of India share of additional profit petroleum of $246.9 million, also on cumulative basis," RIL said in the regulatory filing on Thursday.

"Every year, based on its own interpretations of the PSC (production sharing contract) and assumptions (with which the contractor group does not agree), ministry of petroleum and natural gas revises the total cost it proposes to disallow and consequently aggregates the figure with figures of the previous years... It also demands additional profit petroleum (in total including previous year claims as well) as government of India share," the company said in the filing.

RIL said of the additional profit petroleum claimed, the government has already collected $81.7 million in gas pool account. The government had for 2010-11 disallowed $457 million of cost, $548 million for 2011-12, $792 million for 2012-13 and $579 million for 2013-14. Now, another $380 million cost has been disallowed for output lagging behind target in 2014-15.

Gas production at Dhirubhai-1 and 3 gas fields in the eastern offshore KG-D6 block was supposed to hit 80 million cubic meters per day (mcmd) as per the profit sharing agreement, but actual production has been declining from 35.33 mcmd in 2011-12 to 20.88 mcmd in 2012-13 and 9.77 mcmd in 2013-14. The annual output has been around 8 mcmd since then.