The Directorate General of Hydrocarbons (DGH) has recommended that Reliance Industries cough up an additional penalty of $792 million for not fulfilling natural gas production targets from its eastern offshore KG-D6 fields. This will be in addition to the $1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12.

The DGH was responding to the oil ministry, which had sought the regulator’s comments on six issues raised by the ministry of finance based on two newspaper editorials. On the issue raised by MoF of logically concluding issues with Reliance related to cost recovery, the DGH in the letter dated 1st August 2013 noted, ?The DGH has now conveyed to the oil ministry that an amount of $1,788 million may be considered to cost disallowance due to the continued production shortfall and for issuing a similar notice to the contractor in respect of the year 31, March 2013, based on which the contractor will be liable to pay $ 114 million as additional profit petroleum to GOI for 2012-13.?

In the letter to the oil ministry, the DGH also recommended revised gas prices for incremental production only and asked to allow the old price for the shortfall in production in respect of KG-D6. The DGH, however, noted that is difficult to estimate both targeted and actual production.

On the issue raised by the MoF of subjecting gas producers to closer regulation, DGH said that regulation of cost-recovery and technical parameters related to production is being done by the Management Committee in accordance with the provisions laid down in the PSCs.

The DGH also recommended that future contracts be based on the revenue-sharing model as suggested by the Rangarajan committee.

House panel wants cap on gas prices

A parliamentary panel report released on Wednesday has recommended that domestic gas prices be capped even as they are set for an upward revision starting April. The government recently approved a new pricing formula under the Rangarajan committee, virtually doubling gas price effective next fiscal. The committee?s report, ?Economic Impact of Gas Price Revision?, suggested a cap was needed to avoid the potential for unlimited gains.