Asserting that there is no amicable solution in sight, the Petroleum and Natural Gas Ministry is ready to go in for arbitration against Reliance Industries Limited (RIL) over the KG-D6 cost recovery issue.
It has charged RIL with ‘deliberate and wilful' breach of production sharing contract (PSC) and being only interested in recovering its (RIL's) cost which it is not entitled to under the PSC.
Feedback
The Petroleum Ministry has made up its mind on arbitration after it got a feedback from the Solicitor-General who had opined that media reports could not be a basis for arbitration as cited by RIL and it was now time for the government to go in for arbitration to put things in perspective.
The Solicitor-General has opined that $1 billion was cost recoverable from RIL and RIL would only have minimum loss in terms of interest of $1 billion.
In a letter to RIL's Executive Director and CEO (Petroleum) P. M. S. Prasad, Petroleum and Natural Gas Ministry Joint Secretary Giridhar Aramane has stated that “While you (RIL) have failed to observe and comply with the amended initial field development plan (IDP) and are in breach of PSC, you have only been interested in recovery of your own costs, which you are not entitled to under the PSC. Despite repeated requests by the government in various correspondences and also in the Management Committee (MC) meetings to comply with your commitments in terms of the approved amended IDP, you have also, till date, failed to satisfactorily respond to and perform your obligations in terms of good international petroleum industry practices as required under the PSC.”
The letter further states: “At the outset, we have to state that you have failed to fulfil your obligations and adhere to the terms of the PSC and are in deliberate and wilful breach of PSC and have, thereby, caused immense loss and prejudice to the government. You have repeatedly failed to meet your targets under the PSC. You are in breach of the PSC. You have failed to comply with the development plan, that is, the amended IDP despite the fact that the Directorate-General of Hydrocarbons (DGH) has, time and again, brought to your notice your failure to adhere to the amended IDP with respect to the DI and D3 fields as approved by the MC.”
Further, its states that “in terms of the approved IDP, as amended, you were required to drill, connect and put on stream 22 wells by April 1, 2011 with an envisaged production rate of 61.88 million metric standard cubic metres per day (mmscmd) and 31 wells by April 1, 2012, with an envisaged production rate of 80 mmscmd. However, as against the aforesaid required 31 wells to be drilled by April 1, 2012, in accordance with the amended IDP, till date you have completed drilling only 18 wells and even of these 18 wells, only 12 are now in operation. This has also resulted in the production rate plummeting to an all time low of 35.22 mmscmd only as against the production rate of 61.88 mmscmd in the year 2011-12 and which ought to have touched 80 mmscmd at present.”
Communication
The Joint Secretary's communication states that RIL had failed to drill two wells in year two and another two wells in year three. However, these have not been connected to the stream, thereby resulting in less production. “On enquiry by the DGH, you have indicated and that the above mentioned wells will be completed and connected to the stream only by mid-2013-14, that is, year five. This, too, is a clear non-compliance of the approved amended IDP and has led to a steady decline in the rate of gas production by you.”
“Without prejudice to the foregoing, the government, by this letter, directs you to comply with the approved amended IDP to meet the targets with respect to the committed gas production rates and to forthwith submit to the government a detailed plan providing the timelines/steps you plan to take to remedy the default and to adhere to the amended IDP.”
