Govt slaps $380 mn additional penalty on Reliance

The output was behind target in 2015-16 as well and the government is yet to issue a cost disallowance notice for that

The government has slapped an additional penalty of $380 million (around Rs 2,500 crore) on Reliance Industries and its partners for producing less than targeted natural gas from eastern offshore KG-D6 fields.

With this, the total penalty, which, is in the form of disallowing recovery of cost incurred, for missing the target in five fiscal years beginning April 1, 2010, now stands at a cumulative $2.76 billion.

The Production Sharing Contract (PSC) allows RIL and its partners BP Plc of the UK and Canada's Niko Resources to deduct all capital and operating expenses from the sale of gas before sharing profit with the government.

Disallowing costs will result in government's profit share rising.

"Up to financial year 2013-14, the cost recovery proposed to be disallowed was $2.376 billion and consequent demand of the government of India share of additional profit petroleum of $195.3 million on cumulative basis.

"On June 3, 2016, the company received a revised claim up to year 2014-15 with a disallowance of $2.756 billion on cumulative basis and consequent demand of the Government of India share of additional profit petroleum of $246.9 million, also on cumulative basis," RIL said in a regulatory filing.

Gas output from Dhirubhai-1 and 3 gas fields in the eastern offshore KG-D6 block was supposed to be 80 million standard cubic meters per day but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The output has been around 8 mmscmd in subsequent years.

The government had for 2010-11 disallowed $457 million of cost, $548 million for 2011-12, $792 million for 2012-13 and $579 million for 2013-14. Now, another $380 million cost has been disallowed for output lagging behind target in 2014-15.

The output was behind target in 2015-16 as well and the government is yet to issue a cost disallowance notice for that.

RIL said disallowance of cost is currently under arbitration.

"Every year, based on its own interpretations of the PSC and assumptions (with which the contractor group does not agree), ministry of petroleum and natural gas revises the total cost it proposes to disallow and consequently aggregates the figure with figures of the previous years.

"It also demands additional profit petroleum (in total including previous year claims as well) as Government of India share," the company said in the regulatory filing.

Contractor group refers to RIL and its partners BP and Niko.

RIL said of the additional profit petroleum claimed, the government has already collected gross $81.7 million in Gas Pool Account.

Photograph: Punit Paranjpe/Reuters