If it is proved that the fall in gas output is due to geological reasons, Mukesh Ambani's firm will not be penalised

In what is being seen as an attempt by the Petroleum Ministry to bail out Mukesh Ambani-owned Reliance Industries Ltd. on technical grounds, the Petroleum Ministry is moving the Cabinet to “deny” RIL higher price for gas produced from the KG-D6 field until the dispute over the shortfall in production is sorted out.

But the Cabinet note comes with a caveat: if it is proved that the fall in gas production was due to geological reasons, then RIL will not be penalised.

The Ministry has ignored the Dr. P. Gopalakrishnan report, first reported by The Hindu on September 7, which squarely blamed the fall in gas output on RIL’s failure to drill an adequate number of wells as per the approved development plan. The committee, set up to study the decline in output from the KG-D6 field, submitted its report in April 2011.

Following the Finance Ministry’s advice to examine the issue of giving a $4.2 mbtu price to RIL until it makes up for the shortfall in gas production, as promised in its contract for the KG-D6 gasfield, the Petroleum Ministry has decided to seek Cabinet approval for the same.

By moving the Cabinet, the Petroleum Ministry has virtually made a U-turn. For, earlier Petroleum Minister M. Veerappa Moily dismissed the Finance Ministry’s advice, calling it a non-issue.

“Once RIL overcomes the ‘technical difficulty’ of producing gas in the KG-D6 field, the government must ensure the company delivers [on] the shortfall it still owes at the old price of $4.2 rather than [its] getting the benefit of the new price,” the Finance Ministry had stated.

Now the Petroleum Ministry, facing flak for tweaking norms to benefit RIL, wants the $4.2 per mbtu price to continue to apply for gas produced from D1- D3 fields even after expiry of the current term on March 31, 2014.

However, experts feel the decision to once again verify the reasons for the fall in production is an attempt by the Ministry to bail out RIL in case it is proved that the reduction was due to geological reasons.

Communist Party of India MP Gurudas Dasgupta, who has been raising this issue vehemently, alleged that the Ministry’s move to approach the Cabinet was nothing short of a conspiracy to bail out RIL.

“It is once again proved that the Petroleum Ministry is working to benefit a particular corporate house, ignoring the report of a reservoir expert appointed by the Ministry itself,” he said.

The CCEA had in late June approved pricing of all domestically produced natural gas at an average of international hub rates and the actual cost of LNG in India based on the Rangarajan formula from next fiscal.

Petroleum Secretary Vivek Rae said there was a technical dispute, over the quantum of gas available in some discoveries in the KG-D6 block, between RIL and the Directorate General of Hydrocarbons (DGH). “That matter needs to be resolved before we take a final decision applicability of new formula.”

The DGH is of the view that output from D1&D3 fell to 10.12 mmscmd from 53-54 mmscmd achieved in March 2010 because RIL did not drill the number of wells it had committed to sinking. It said drilling more wells would have increased output, a view upheld by the one-man Gopalakrishnan Committee. Mr. Rae said the Management Committee of the block, headed by the DGH, would decide whether reserves are actually lower than those estimated earlier or drilling new wells can raise output.

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