The petroleum ministry has slapped a penalty of nearly $250 million on Reliance Industries (RIL) to make good the government’s loss of “profit petroleum” owing to the firm’s inability to meet the natural gas production targets from the Krishna-Godavari (KG) D-6 block.
“In a communication sent on June 3 to RIL by the government, the penalty has revised from $195 million as on March 31, 2014, to $246.9 million till March 31, 2015,” a senior official told FE. The KG-D6 fields started production in April 2009. The current production of around 8 million metric standard cubic metres per day (mmscmd) is a far cry from the peak of over 69 mmscmd achieved in early 2010. The block was envisaged to produce more than 80 mmscmd of the fuel.
Profit petroleum is the main source of revenue for the government from a hydrocarbon block. It is calculated using what is called an investment multiple that denotes how many times the earnings are to the investment.
RIL declined to comment on the notice sent by the government slapping the penalty. The Mukesh Ambani firm had initiated arbitration in November 2011 in anticipation that the government would impose a penalty on the explorer for not meeting output targets. The Centre has disallowed costs to the tune of $2.756 billion till March 2015 for expenses incurred in KG-D6.
In the first quarter of FY17, the private explorer’s revenues for the oil and gas segment decreased by 34.8% year-on-year to Rs 1,340 crore. The decline in revenue was led by lower upstream production in domestic blocks coupled with sharply lower oil and gas prices in both the domestic and US shale segments, the firm said. The unfavourable upstream price environment impacted segment Ebit, which was at negative Rs 312 crore, against Rs 199 crore in the corresponding period of the previous year, it said.