Penalising Mukesh Ambani’s Reliance Industries Ltd (RIL) and its partners (BP and Niko) for producing less than targeted natural gas from the Krishna Godavari fields on India’s eastern coast, the government has slapped an additional penalty of $380 million (over Rs 2,500 crore) on the company.
This latest penalty makes the total penalty imposed by the government on RIL at $2.76 billion or close to Rs 18,500 crore. The entire penalty, following missing the targets of gas production in 5 years from April 1, 2010, will be imposed by way of disallowing recovery of cost incurred by RIL
On its part, RIL said in a regulatory filing, “We reiterate that all claims made by Government of India are denied by contractor group (led by Reliance Industries) and currently part of an ongoing arbitration.”
RIL added that every year the government uses its own interpretations of the contract with the Reliance Industries-led consortium in ascertaining to what extent the cost of extracting gas should be denied and enjoins it to arrive at a cumulative figure.
The Production Sharing Contract (PSC) allows RIL and its partners to deduct all capital and operating expenses from the sale of gas before sharing profit with the government. Disallowing costs will result in government’s profit share rising.
Gas output from Dhirubhai-1 and 3 gas field in the eastern offshore KG-D6 block was supposed to be 80 million standard cubic meters per day but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. The output has been around 8 mmscmd in subsequent years.
The government had for 2010-11 disallowed USD 457 million of cost, USD 548 million for 2011-12, USD 792 million for 2012-13 and USD 579 million for 2013-14. Now, another USD 380 million cost has been disallowed for output lagging behind target in 2014-15.
The output was behind target in 2015-16 as well and the government is yet to issue a cost disallowance notice for that.