Adopting a tough stance, Reliance Industries Ltd (RIL) told the Petroleum Ministry that there are no provisions in the contract that entitle the Government to disallow any cost recovery.
In a letter to the Petroleum Ministry on May 4, the company said that a contractor is entitled to recover all of its costs under the terms of the production sharing contract (PSC), sources said. The dispute was regarding cost recovery from the RIL-operated Krishna Godavari basin D6 block.
Sources said that since the Government has acknowledged that there is a dispute, it should also appoint an arbitrator.
The company was responding to a Government letter of May 2 saying that it proposes to disallow over $1 billion as cost recoveries for 2010-11 and 2011-12 in the East Coast gas fields.
RIL and its partner in the block have been in the public glare for failing to control the drop in output from the D6 block.
According to the Ministry, the contractor has failed to comply with the AIDP (the amended initial field development plan). In terms of the approved AIDP, the contractor was required to drill, connect and put on stream 22 wells by April 1, 2011 with an envisaged production rate of 61.88 mmscmd and 31 wells by April 1, 2012 with an envisaged production of 80 mmscmd.
However, the output from the fields (D-1, D-3 and MA) has plummeted to around 33 mmscmd currently. RIL has been maintaining that this has been because of geological complexities.
On November 23, 2011, RIL had issued arbitration notice under the provisions of the PSC to the Government for wrongful denial of cost recovery on the ground of lower production or under-utilisation of facilities.
However, since no arbitrator has been appointed by the Government for nearly five months, RIL has filed a petition in the Supreme Court, under Section 11 of the Arbitration Act, seeking appointment of an arbitrator on behalf of the Government by the Court.