Government slaps $380 million additional penalty on RIL

NEW DELHI: The government has disallowed an additional $380 million of cost recovery to Reliance Industries for producing less than the targetted amount of natural gas from the KG-D6 field, the company has said in a market filing.

Reliance Industries and partners BP Plc and Niko Resources are engaged in an arbitration with the government on how much cost the contractors can recover from the project. The production sharing contract (PSC) that governs the project allows Reliance and partners to deduct all capital and operating expenses before sharing profit with the government. But the government has objected to full deduction on ground flagging production didn’t match the investment made.

“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 the figures of the previous years. It also demands additional profit petroleum,” Reliance said.

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

“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 Government of India share of additional profit petroleum of $246.9 million, also on cumulative basis,” the company said. Reliance further said that the government has already collected gross $8.17 million in Gas Pool Account towards this claim. The contractor group, comprising Reliance and partners in this field, has again denied government claims in this regard.

A far lower gas output from the KG-D6 field fuelled the dispute between the government and Reliance. The gas output targetted to reach 80 million standard cubic metres per day (mscmd) was less than half in 2011-12 and has subsequently fallen further to around 8 million standard cubic metres now.