Mr Mukesh Ambani may have met the Prime Minister, Dr Manmohan Singh, ‘just like that', but the meeting appears to have galvanised his company Reliance Industries Ltd (RIL) into more aggressive action.
On the heels of the meeting, RIL has sent an arbitration notice to the Petroleum & Natural Gas Ministry on the latter's intention to disallow some of the expenditure incurred by the company in the east coast fields.
RIL has come in for severe criticism for its inability to check the falling output from the gas fields in the Krishna Godavari Basin D6 block. Recently, RIL had roped in British firm BP as a partner to use its deep water expertise.
Last week, the Petroleum Secretary, Mr G.C. Chaturvedi, had said that in the next three-four weeks, the Petroleum Ministry will decide on the action to be taken against Reliance Industries for its gas output falling below target from the gas fields.
The Secretary had said, “We had sought the views of Law Ministry. Our Ministry is examining their views. In the next three-four weeks, we will be able to decide on the future course of action.”
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 under-utilised and have excess capacity because of drop in output. This was contrary to the production sharing contract norms.
RIL's stance: In a statement issued on Monday, RIL said that it has read press reports that the Ministry will seek to restrict the amount of the cost recovered by the company from the revenues generated from gas sales from the D-1 and D-3 fields. This move is reportedly on the grounds that production levels are lower than originally anticipated and that the field facilities not fully utilised.
Reliance has sent an arbitration notice on the grounds that the production sharing contract contains no provisions which entitles the Government to restrict the costs recovered by the company. Besides, the investment made in the KG-D6 production facilities has been only partly recovered and the return on investment so far is less than the cost of the capital, the company said.
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.
“To finally resolve this cost recovery issue so as not to hinder future investments in this block, the company has begun arbitration proceedings against the Government to have the company’s entitlement to recover its costs, and the validity of the stance adopted by the Ministry, finally determined by an independent tribunal,” the company said.
The company is currently producing 42 million standard cubic metres per day from the gas fields. It has been unable to control the drop in output from D-1 and D-3 gas fields in the block.