Cabinet to consider additional penalty on Reliance Industries

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SummarySecond penalty in the form of denial of higher gas prices has been opposed by Planning Commission

The Cabinet may next week consider an Oil Ministry proposal to deny Reliance Industries a hike in natural gas prices on top of USD 1.786 billion penalty it is already imposing as punishment for producing less than targets.

The Ministry is proposing that RIL should be forced to sell natural gas from the currently producing D1&D3 fields in KG-D6 block at current rate of USD 4.2 per million British thermal unit even though the rest of the country will move to a new pricing regime that effectively doubles rate to USD 8.4.

"The new formula will not apply to the currently producing fields until it is proved that they (RIL) have not deliberately supressed production," a ministry official said.

The punitivie measure is on top of the USD 1.786 billion penalty that is already being levied on RIL for output from D1&D3 falling by one-sixth to 10 million standard cubic meters per day instead of rising to planned 80 mmscmd.

The second penalty in the form of denial of higher gas prices has been opposed by the Planning Commission which says the move will set a "a bad precedent" and "could impact adversely on the investment climate in the same way as retrospective tax amendments did".

"Irrespective of what opinions have been given on our draft note, we are sticking to our point that RIL should not get the benefit of higher gas price," the official said.

The proposal, he said, may come before the Cabinet as early as next week when Prime Minister returns from abroad.

Asked how the ministry will determine if output was deliberately supressed or production fell due to geological reasons as claimed by RIL, he said it could be either determined by an international expert or through arbitration.

The Ministry has however refused to appoint international experts to study the reasons for fall in output. The

arbitration that RIL had initiated against the move to impose the penalty has not yet commenced and the ministry has not made any attempts to expedite it.

The official could not say how the government will compensate RIL if the international expert was to establish at a later date that output fell due to geological reasons or if the arbitration ruled that there exists no provision in the Production Sharing Contract (PSC) to impose penalty for output not matching the targets.

Both the issues -- appointment of independent expert and arbitration--are unlikely to conclude by March 31, 2014 when the

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