Govt set to penalise RIL for dipping KG-D6 gas output | business | Hindustan Times
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Govt set to penalise RIL for dipping KG-D6 gas output

business Updated: Nov 22, 2011 20:47 IST

With the continuous fall in gas production from the KG-D6 gas field of Mukesh Ambani's Reliance Industries Ltd (RIL), the government is holding legal consultations to penalise the company for the fall in its gas production.

Reliance has built facilities to handle 80 units (million cubic metres per day) of gas production, but the fields are producing less than 42 units. Any fall in gas production, besides impacting supplies, also has a direct impact on the government's share of revenues coming from the sale of gas.

"We had sought the opinion of the Law Ministry. We have received the opinion... we are considering it," petroleum secretary GC Chaturvedi said.

While no official comments were received from RIL, sources close to the company said the move may be challenged by Reliance and its new partner, BP Plc, and is likely to head to arbitration.

The production sharing contract (PSC) for the gas field between the operator and the government allows the former to recover 100% of exploration and production costs, and does not link cost recovery to output.

Asked if the PSC provides for restricting cost-recovery, Chaturvedi said, "We are studying that", but clarified that the government will not hesitate "to amend the PSC if required" in the Reliance case.

"We will decide (on the next course of action) in 3-4 weeks," he said.

Chaturvedi said his ministry will ask the Law Ministry why it has not pointed to specific clauses, if any, in the PSC while giving an opinion on limiting cost-recovery in KG-D6.