Fresh fine on Reliance gas sought as arbitration continues

New Delhi, July 14 :

Acknowledging that the issue was under arbitration, Petroleum Minister Dharmendra Pradhan told parliament Monday that a fresh notice has been served on Reliance Industries seeking additional penalty for lower production of gas.

“The government has issued notice proportionate disallowance of cost of production facilities amounting to $1.797 billion as on March 31, 2013,” Pradhan told the Lok Sabha, the lower house of parliament, in a written reply.

“Further, a notice has also been issued on July 10, 2014, whereby a cumulative cost of $2.376 billion, up to March 31, 2014, has been disallowed,” Pradhan said, suggesting an additional penalty of $579 million.

“The issue is currently under arbitration.”

According to the minister, a claim has also been raised towards what is called profit petroleum, or the government’s share of the gas, to the tune of $115 million that has been sought from Reliance due to the disallowance of the contract costs till 2012-13.

In addition, the state-run GAIL India and Chennai Petroleum have been asked to remit the proceeds from the sale of gas from the said Reliance fields to the extent of 50 percent each so as to recover the profit petroleum of $115 million.

In the reply, the minister said, Reliance Industries did not adhere to the terms of the production sharing contract, which provided for the avoidance of accumulation of surplus stocks for future.

“The contractor has created production facilities for gas production rate of 80 million units from D1 and D3 fields. However, the actual gas production has been much less, resulting in under-utilisation of facilities and creation of surplus inventories.”

Giving data, Pradhan said the company was to produce 61.88 million units of gas in 2011-12, but produced only 35.33 million. In each of the subsequent two years, while it was to produce 80 million units, it managed only 20.88 million and 9.77 million, respectively.

“The contractor of the block KG-DWN-98/3, M/s RIL has invoked arbitration against the action of the Ministry of Petroleum and Natural Gas of disallowing the cumulative development costs,” the minister said.

“The government has also appointed arbitrator and the issue is under arbitration.”

The issue has resurfaced even as the oil ministry is dragging its feet on revising the price of gas from domestic sources. The United Progressive Alliance (UPA) government was on the verge of doubling it but was asked to hold it back till the parliamentary elections were over.

“The formula approved in 2007 was valid for a period of five years from the date of commencement of supply and was to remain valid up to March 31, 2014. Accordingly, the formula was due for revision,” Pradhan said in another reply.

“The new government has decided the whole issue of gas pricing will need comprehensive re-examination,” said Pradhan on the matter that has not been taken kindly by the oil and gas producers in the country.

“The domestic natural gas pricing guidelines, 2014, have been kept in abeyance up to Sep 30, 2014, and till that time, the domestically produced gas would continue to be priced at the rate prevailing on March 31, 2014,” the minister added.

(IANS)