DGH for $792 mn more penalty on RIL

DGH for  $792 mn more penalty on RIL
Highlights

Oil regulator Director General Hydrocarbons (DGH) has recommended an additional penalty of $792 million on Reliance Industries Ltd for producing less than the projected natural gas from its eastern offshore KG-D6 fields. DGH last month recommended to the Oil Ministry that $792 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million cubic meters per day of gas as against the target of 86.73 mmcmd in 2012-13.

Oil regulator Director General Hydrocarbons (DGH) has recommended an additional penalty of $792 million on Reliance Industries Ltd for producing less than the projected natural gas from its eastern offshore KG-D6 fields. DGH last month recommended to the Oil Ministry that $792 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million cubic meters per day of gas as against the target of 86.73 mmcmd in 2012-13.

This will be in addition to $1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12, a top official said. "DGH had in July 22 letter proposed for disallowance of cumulative cost recovery amounting to $1.797 billion ($1.005 billion for plus $792 million) up to FY 2012-13 towards creation of excess capacity," he said.

It blamed RIL for not drilling its committed quota of wells leading to fall in production, resulting in a large chunk of production facilities lying unused or under-utilised. RIL has built infrastructure to handle 80 mmscmd of output but is currently producing less than 14 mmscmd. As per the production sharing contract, RIL and its partners BP Plc and Niko Resources are allowed to deduct all of the capital and operating expenses from sale of gas before sharing profits with the government.

Creation of excess or unutilised infrastructure impacts government's profit share and this is being sought to be corrected by disallowing part of the cost. The official said the Oil Ministry is yet to act on the advice of DGH as the previous cost recovery disallowance notice is under arbitration.

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