Reliance Industries cries it's being penalised twice over

RIL and its partner BP plc on September 18 made a detailed presentation to Oil Minister M Veerappa Moily on issues around its main D1&D3 fields in its eastern offshore KG-D6 block where output has fallen to less than a one-fifth to 10 million standard cubic meters per day instead of rising to 80 mmscmd.

Moily's ministry sees production not meeting stated targets are breach of contract and has levied USD 1.786 billion in penalty by way of disallowing cost incurred in past three fiscal. Also, it plans to deny RIL benefit of new price after the current USD 4.2 expires in April next year.

"A double penalty to the contractor: On one hand cost recovery being disallowed on the other market price being denied," RIL said in the presentation.

It said under the Production Sharing Contract (PSC), output figures in a development plan are only estimates and not commitments.

"There is no provision in the PSC that allows Government to penalise the contractor if production shortfall is caused by geological complexities," it said adding the contract allows RIL to recover all its costs.

On move to disallow new USD 8.4 per million British thermal unit price for gas from D1&D3 fields, RIL said, "there appears to be significant contradiction to the government's positions with regards to PSUs who have been granted a nearly 2.5 times price increase despite shortfall in production."

RIL said geological surprise has led to decline in production and subsequent downgrading of reserves.

Stating that it had on numerous occasions requested to appoint an independent international expert to verify its claims, the company said, "Reluctance to appoint a third party exert despite repeated requests and delay in approval of revised field development plan has led to a negative propaganda perpetrated by detractors."