In what could spell further trouble for Mukesh Ambani-owned Reliance Industries Limited (RIL), the Solicitor General of India (SGI) has felt that RIL should not be allowed to recover the cost of facilities that remain underutilised due to lower than anticipated output at its KG-D6 gas field.

The development comes after the Directorate General of Hydrocarbons (DGH) and the Petroleum Ministry had asked RIL to drill the committed 22 wells by April 2011 in the KG basin facility. However, RIL, which had already drilled 18 wells, refused to go ahead with the drilling of any further wells due to fall in gas production. The current facilities at KG basin have been constructed to handle up to 80 million cubic metres per day (mcmd) of gas but current production is less than 45 mcmd.

The DGH has blamed the current drastic fall in production on the failure of RIL to drill the adequate number of wells than what the company had committed in 2006 when it won approval for investing $8.8 billion. Officials in the Petroleum Ministry said DGH had been issuing directions to RIL to drill the committed 22 wells by March 2011, so that Dhirubhai-1 and 3 fields can produce projected 61.88 mcmd and MA field also in the same block another 8.1 mcmd.

However, RIL has continued to evade the issue on the pretext that pressure at current 18 wells fell and some showed water ingress. On this, DGH proposed to allow only proportionate recovery of cost. On insistence of DGH, the Petroleum Ministry sought a view from the second Solicitor General of India.

In his legal opinion dated August 17, SGI, Rohinton F. Nariman said that “The cost/expenditure incurred in constructing production/ processing facilities and pipelines that are currently underutilised/have excess capacity cannot be recovered”.

Mr. Nariman in his opinion states that the government has an arguable case to stop RIL from recovering expenditure which had resulted in excess capacity/under-utilisation of the asset created" on account of its failure to adhere to the 2006 approved field development plan.