RIL, partners put only $82 mn in gas pool account

The govt fixes prices based on a formula linked to key gas markets across the globe

Mukesh Ambani-led Reliance Industries and its partners, BP and Niko Resources, have so far paid only $82 million to the gas pool account — maintained to park the differential between the notified gas price given to others and the $4.2 per unit that the three contractors charge their customers.

The firms are yet to pay the penalty imposed on them for disallowing recovery of cost incurred for missing the target during six years from 2010. After a fresh penalty of Rs 264 million in August, the total now stands at $3.02 billion. Fining them, the government had cited their failure to drill the committed number of wells and producing less than the targeted natural gas from the Dhirubhai-1 and 3 fields in the eastern offshore Krishna-Godavari-D6 block. Production was supposed to be 80 million standard cubic metres per day.

The firms have contested the fine. They are of the view that the disallowance of costs incurred by the joint operation has no basis in the production-sharing contract and that there are strong grounds to challenge the government’s position. 

Since November 1, 2014, after the new domestic natural gas price came into effect, the contractors were being paid the earlier price of $4.2 per mmBtu (one million British thermal units) and the difference between this and the revised price was getting deposited to the gas pool account. 

“Deposits to the gas pool account for natural gas sales from the D1-D3 fields from November 2014 to March 2016 totalled $82 million (Niko share $8.2 million). Of that, $4 million (Niko share $0.4 million) of royalties were paid to the government out of the gas pool account,” Niko Resources said in its first-quarter results. 

Niko added that commencing April 2016 and, thereafter, to date, the revised gas price under the guidelines was below $4.2 and deposits were not required to be made to the account. The companies were, therefore, also not paying to the account for nearly 18 months, despite lower gas-price regime. 

The government fixes prices based on a formula linked to key gas markets across the globe. Analysts cite the prices were below $4.2 much before March 2016 — they were down to $3.82 in October 2015. Since October, the prices came down further to $2.89. This means RIL and its partners should have deposited a larger amount of differential into the account.

BP India head Shashi Mukundan had indicated in an interaction with Business Standard that production had gone down to the rate of 6 mscmd, and the challenge the companies were facing was to keep the gas flow continuing until the new productions are on stream in 2020. The money from the gas pool account was supposed to be given to the contractors or the government, depending on the outcome of the ongoing arbitration. “For the three months ended June, the company recorded an interest income of $0.2 million related to the gas pool account receivable,” the firm added.

The other major dispute going on between the firms and the government is regarding a penalty of $1.55 billion for commercially producing state-owned Oil and Natural Gas Corporation’s share of natural gas in the KG basin. According to a D&M report, over 11.2 billion cubic meters of gas had migrated from ONGC’s idling KG fields.

Fine Burden

• Firms yet to pay fine for disallowing recovery of cost for missing target during six years from 2010
• After the govt levied a fresh fine of Rs 264 mn in August, the total stands at $3.02 bn
• The firms have contested the fine