RIL says it's being penalised twice

Reliance Industries has said it is being punished twice over - first by levy of a $1.78-billion penalty and then by being denied a gas price revision, for a single crime of not producing in line with projections that were not even contractual commitments.

RIL and its partner BP plc on September 18 made a detailed presentation to Oil Minister M Veerappa Moily on issues around its main D1&D3 fields in its eastern offshore KG-D6 block where output has fallen to less than a one-fifth to 10 million standard cubic metres per day instead of rising to 80 mscmd.

Moily's ministry sees production not meeting stated targets are breach of contract and has levied $1.786 billion in penalty by way of disallowing cost incurred in past three fiscal. Also, it plans to deny RIL benefit of new price after the current $4.2 expires in April next year.

"A double penalty to the contractor: On one hand cost recovery being disallowed on the other market price being denied," RIL said in the presentation. It said under the Production Sharing Contract (PSC), output figures in a development plan are only estimates and not commitments.

"There is no provision in the PSC that allows Government to penalise the contractor if production shortfall is caused by geological complexities," it said adding the contract allows RIL to recover all its costs. On move to disallow new $8.4 per million British thermal unit price for gas from D1&D3 fields, RIL said, "there appears to be significant contradiction to the government's positions with regards to PSUs who have been granted a nearly 2.5 times price increase despite shortfall in production."