DGH had recommended RIL be made to relinquish 86% of total contract area

In total disregard of the adverse observations by the Comptroller and Auditor General (CAG) and recommendations by the oil regulator Director General of Hydrocarbons (DGH), the Petroleum Ministry continues to drag its feet on the decision to direct Mukesh Ambani-owned Reliance Industries Limited (RIL) to relinquish 6,601 sq.km. of the contract area (86 per cent of the total area) in the KG D6 block which potentially holds gas reserves worth $4.83 billion.

The total contract area in the KG-DWN-98/3 block is 7,645 sq km. The DGH’s recommendations — based on data furnished by the operator from time to time and CAG’s views — were made in December 2012 and again in April this year and endorsed by the Joint Secretary (Exploration) as well as the Petroleum Secretary.

However, the file has been lying with Petroleum Minister Veerappa Moily for months. On June 16, Mr. Moily had stated that a decision on the issue would not be taken on the mere technicality of rules. “Automatically, technically applying a rule is good for you [but] it is not good for the country,” he said, without elaborating. Ministry officials had concurred with the DGH view that RIL had overshot the time allotted to it for developing the area and so should, as per contract, be asked to relinquish most of the KG-D6 area.

The CAG had, in its Performance Audit of Hydrocarbon Production Sharing Contract (PSC) report no. 19, stated that the Ministry should review the determination of the entire contract area of KG-DWN-98/3 as a “discovery area”.

The audit report had said the Ministry should delineate the stipulated 25 per cent relinquishment area each on the conclusion of the 1st and 2nd exploration phases, and then correctly delineate the discovery area strictly based on the PSC definition, linked to well or wells drilled in that part, without considering any subsequent discoveries (which are invalid on account of non-compliance with PSC provisions).

The Ministry had on November 28, 2011, written to RIL about the CAG observations and advised it to comply within 120 days. The RIL replied on March 26, 2012, submitting that the contract area was retained by the contractor in accordance with the provisions of the PSC and this was approved by the government Management Committee (MC).

In reply to the contentions made by RIL and its argument on relinquishment of part of area measuring 4,233 sq.km. area and also about the status of 19 discoveries made in the block, the DGH, in its April 2013 letter to the Ministry, rejected RIL’s offer to relinquish 4,233 sq.km. of low-prospect area, asserting that the company should contractually give up 6,601 sq.km.

“It is proposed that in accordance with Article 3.11 of the PSC and considering the status of 19 discoveries, the Petroleum Exploration Licence [PEL] for an area of 6,601 sq.km. will cease to be in force in the first instance, out of the original contract area of 7,645 sq.km. This will leave, in the first instance, an area of 1,044 sq.km. to be retained by the operator [RIL] consisting of 618.12 sq.km. of existing PEL areas and an area of 425.88 sq.km. [out of 1,664 sq.km. proposed by the operator].”

The DGH had maintained that of the 19 oil and gas discoveries claimed by RIL, three finds have not been established as commercially viable in the absence of test data and the company has not submitted any investment plans for another five. According to the DGH’s calculations, 6,601 sq.km. of contract area proposed for cessation has at least 1.15 trillion cubic feet of known recoverable gas reserves valued at $4.83 billion at current prices.

“In view of the above, the Petroleum Ministry may intimate the contractor about cessation of PEL in respect of 6,601 sq.km. of contract area in the first instance in the KG-D6 under Article 3.11 of PSC,” the DGH letter concluded.

Dasgupta asks PM to enforce DGH order

Prime Minister Manmohan Singh should immediately intervene and direct the Petroleum Ministry to accept the recommendations of the DGH asking RIL to relinquish 86 per cent of the contract area in the KG-D6 block, Communist Party of India MP Gurudas Dasgupta has said.

Mr. Dasgupta has alleged a scam of Rs. 60,000 crore in allowing RIL to continue holding on to the area whose timelines had expired under the contract. He said if this area was relinquished and the discoveries handed over to Oil and Natural Gas Corporation Limited (ONGC) for production, the government could realise Rs. 60,000 crore through sale of gas from these discoveries. “We are witnessing a sorry spectacle of the private contractor [RIL] trying to browbeat its own regulator [DGH] who is an honest officer trying to uphold public interest, and the government has remained a silent spectator,’’ he said in a letter to the Prime Minister.

The MP also sought an end to the “witch hunting being indulged in of the honest officers by the Petroleum Minister” and urged him [Dr. Singh] to prevent the ouster of DGH R.N. Choubey from his post before the expiry of his three-year term. In December last, the DGH submitted a report regarding relinquishment to be done by RIL based on the CAG’s observations. The DGH again wrote in April last giving details of the matter and insisting that relinquishment be done as per the production sharing contract . “The view of the DGH was examined by the Petroleum Ministry and the Secretary, Petroleum, and Joint Secretary, Petroleum, endorsed them. When the matter reached the Petroleum Minister, he overruled all the officials and directed that RIL be consulted in the matter,” he said.