In an interesting turn of events, the Petroleum Ministry has asked Reliance Industries Ltd — operator of D6 block — to withdraw its arbitration notice on the grounds that ‘as on date' there was no reason for this.
Last November, RIL had sent an arbitration notice to the Petroleum and Natural Gas Ministry on the latter's intent to disallow some of the expenditure incurred by the company in the East Coast fields.
Reliance sent an arbitration notice on the grounds that the move to recoup the expenditure is illegal as it is against the production sharing contracts. Earlier reports had indicated that $1.85 billion out of the $5.69-billion investment already made in the facilities will be disallowed by the Ministry and arbitration initiated to recover that from RIL. Reports now suggest that the Ministry will be looking at disallowing $1.23 billion as cost recoveries for 2010-11 and 2011-12.
While sources said that the company has received a communication from the Ministry, they added that the letter is silent on the amount that the Ministry wants to recover. Reliance could respond to the Ministry's letter by the end of this week.
Reliance has been in public glare for the falling output from the gas fields in the Krishna-Godavari Basin D6 block and its inability to check it. The Petroleum Ministry was planning to take action against Reliance Industries for its gas output falling below target.
The Ministry is said to have decided to disallow expenditure incurred in constructing production and processing facilities at D-1 and D-3 gas fields in the D6 block that are currently underutilised and have excess capacity because of drop in output. This was contrary to the production sharing contract norms.
Toning down?
On December 9, the Petroleum Minister, Mr S. Jaipal Reddy, had ruled out any change in the existing production sharing contract with reference to D6 block. This was seen by industry as toning down of the Government's earlier position of amending the production sharing contract, if need be, for taking action against the operator for output from producing fields falling below target.
Though RIL had sent an arbitration notice giving the Ministry 30 days to initiate steps like appointing arbitrators, the Ministry maintained that RIL had “only sent a letter” and not an arbitration notice.