Govt gets firm with Reliance Industries, to tell KG oil buyers to deduct $115 m

Written by Amitav Ranjan | New Delhi | Updated: Jun 25 2014, 13:36pm hrs
RILThe ministry estimates RIL should not be allowed to recover $1.797 billion towards costs incurred on the block until March 2013. Reuters
The Petroleum Ministry has proposed that state-run companies deduct $115 million from payment due to Reliance Industries Limited (RIL) from their purchase of crude oil and natural gas from KG-D6 block and deposit it in a government account. Simultaneously, it plans to issue a fresh notice to RIL on levying an additional penalty of $579 million on account of natural gas production shortfall from KG-D6 block for the financial year 2013-14.

The ministry estimates RIL should not be allowed to recover $1.797 billion towards costs incurred on the block until March 2013 as it produced less natural gas than it had guaranteed while seeking approval for a huge jump in block development expenditure in December 2006.

This reduction in cost recovery by RIL increases governments share of profit petroleum by $115 million, which the ministry proposes to recover by instructing Chennai Petroleum, Hindustan Petroleum and GAIL India buyers of KG-D6 crude and gas to remit their payment directly to a government account.

The tough stand was taken after RIL failed to comply with the ministrys May 2012 notice, reiterated in February 2014, asking RIL to compute the governments share of profit petroleum after deducting the disallowed costs.

Documents also say that a notice would be issued to RIL for disallowing $579 million for 2013-14 and directing it to remit an additional $80 million to the government as the latters share of profit petroleum for that financial year.

In all, it estimates the total disallowed cost recovery until March 2014 at $2.376 billion that would force RIL to pay back $195 million as profit petroleum to the government for producing less natural gas than it had promised.

The proposal awaits the approval of the minister and would bring to an end the long-dragging penalty proceedings, first initiated in May 2012 when a claim to disallow $1.462 billion for a collective two years (2010-12) was issued. RIL had then invoked arbitration against the notice.

The ministrys Exploration Division pushed for another notice to RIL that included cost disallowance for 2012-13 but was stopped by former minister M Veerappa Moily, who asked it to first check with the Law Ministry. Former solicitor general Mohan Parasarans opinion was that although the matter had been referred for arbitration, there was no restraint on the government from proceeding in the manner as set out in the first penalty notice of May 2012.