Reliance Industries clarifies its position on the KG-D6 Issue

Reliance Industries Limited (RIL) has released a statement regarding the KG-D6 gas price issue. The Mukesh Ambani-owned company categorically states that the government’s move to disallow it recovery of certain costs relating to the D6 gas block in the Krishna-Godavari basin (KG-D6) did not amount to a penalty. Further, this was not in line with the contract it had signed with the Government when it was allotted exploration and production rights nearly a decade back.

RIL issued a statement at the Bombay Stock Exchange (BSE) regarding the penalty imposed by the government for the fall in the output levels of KG-D6 basin. In a statement, the company said, “RIL and its partners believe the purported rationale of the government, in proportionately disallowing the cost in the ratio of actual production to the estimated production from D1-D3 fields in KG-D6 is not as per the Production Sharing Contract (PSC).”The exchange had earlier sought a clarification from RIL on a news article saying the latter had been slapped with a new fine of $579 million. The company said media reports “apparently” misquoted the disallowance of cost recovery by the government as levy of fine or penalty.

The Ministry of Petroleum under the command of Minister Dharmendra Pradhan had told the Parliament that the government had issued a notice to RIL whereby a cumulative cost of $2.376 billion up to March 31 had been disallowed. “The ministry has also raised a claim of additional profit petroleum of $115 million to be paid by the contractor, on account of disallowance of cumulative contract costs of $1.797 billion, till 2012-13,” he had said.

According to the production sharing contract that is drawn between the Govt., & any private entity, a company and its partners can deduct all expenses from the sale of gas before sharing profits from this sale with the government. In this case, it applies to RIL’s partners – British Petroleum (BP) and Niko Resources. RIL has states that in 2012, the Govt. of Indiawrongfully sought to disallow cost recovery of investments made in the KG-DWN-98/3 block for 2010-11 and 2011-12. In a statement, the company said, “The potential impact to the contractor is the additional payment of profit petroleum to the government, when and if the disallowed cost is added to the profit petroleum.”

Reliance Industries have also states that it had commenced an arbitration process under the production sharing contract (with its partners BP & Niko) over the wrongful disallowance of cost recovery by the government in November 2011 and that the news item of disallowance of $579 Million related to 2013-14.

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