Debunking the claims by Reliance Industries Limited (RIL) that it had not violated the production sharing contract (PSC) with regard to output from KG-D6 gas fields and hence there was no basis for cost recovery, the Government has warned the company of further action if it failed to submit forthwith detailed plans providing timelines and steps being taken to remedy the default.
Charging the company with total breach of the PSC, it has pointed out that Clause 6 (a) of the PSC provides that the operator, on behalf of the contractor and with the approval of the Operating Committee, is required to submit proposals for the approval of the development plans or any modifications or revisions thereto to the Managing Committee (MC) for its approval. It was in accordance with the foresaid provisions of the PSC that RIL and its partner Niko had submitted an initial field development plan (IDP) to the MC which was approved by it on November 5, 2004.
Further, at the instance of RIL, an amended IDP was submitted which was approved by the MC on December 12, 2006. “The PSC, inter alia, requires the contractor to work towards the prompt and orderly development of the development area in accordance with the work programme formulated by the contractor, and the contractor is obliged to work strictly in accordance with the contract area diligently, expeditiously, efficiently and in a safe and workmanlike manner pursuant to the work programme formulated in accordance with the PSC.” The PSC also mandates that the contractor shall, after the designation of a development area, pursuant to the PSC, proceed to take all necessary actions for prompt and orderly development of the development area and for the production of petroleum in accordance with the terms of the PSC.
In terms of Clause 151 of the PSC, the contractor shall be entitled to recover contract costs out of a percentage of total value of petroleum produced and saved from the contract area in the year in accordance with the provisions of Clause 15 of the PSC.
Clause 15.11 of the PSC provides: “Pending completion of the calculations required to establish definitively the contractor's entitlement to cost petroleum from the contract area in any year, the contactor shall take delivery, provisionally, of the volumes of crude oil or natural gas representing its estimated cost petroleum entitlement calculated with reference to estimated production quantities, costs and prices as established by the contractor and approved by the MC. Such provisional determination of cost petroleum shall be made every quarter on an accumulative basis. Within 60 days of the end of each year, a final calculation of the contractor's entitlement to cost petroleum, based on actual production quantities costs and prices for the entire year, shall be undertaken and any necessary adjustments to the cost petroleum entitlement shall be agreed upon between the government and the contractor within 30 days and made within 30 days thereafter.” It has asked RIL to come up with a detailed plan on timelines and steps being taken to remedy the default in KG-DWN-98-3 and to adhere to the amended IDP. It has warned that the government, without prejudice to the foregoing, reserves its right to take such other and further actions as it may deem appropriate for the breaches of the PSC.
