Oil ministry says no provision for penalty in RIL’s KG-D6 contract

The Parliamentary Committee in its report expressed surprise at the lack of specific penalty stipulations in PSC and asked the government and its upstream technical arm, DGH “to review PSC contracts entered with various operators and incorporate stringent provisions therein for any breach in approved plan”

New Delhi: As it gets ready to take action against Reliance Industries (RIL) for the dip in output at the KG-D6 fields, the oil ministry has told a Parliamentary Committee that the Production Sharing Contract (PSC) for the block does not provide for penalty in case of shortfall in production targets, reports PTI.

“There are no specific penalty stipulations in PSC in case of shortfall in achieving production targets envisaged in either the approved Field Development Plan (FDP) or Annual Work Programme and Budget, except termination of the contract,” the ministry told Standing Committee on Petroleum and Natural Gas, whose report was tabled in Parliament last week.

Irrespective of the submission made to the committee, the ministry wants to limit the amount of expenditure RIL can recoup in proportion to the gas production from KG-D6, as it feels the 40% drop in output was because of the company did not drill the committed number of wells.

Fearing such a move, RIL had on 24th November slapped an arbitration notice seeking to address the issue legally.

The ministry last week sought time till 31st January to reply to the notice.

The panel in its report expressed surprise at the lack of specific penalty stipulations in PSC and asked the government and its upstream technical arm, Directorate General of Hydrocarbons (DGH) “to review PSC contracts entered with various operators and incorporate stringent provisions therein for any breach in approved plan.”

The PSC allow operators to recover 100% of their exploration and production costs and do not link cost-recovery to output.

The ministry told the panel that annual production targets are first approved by the operator (RIL)-led operating committee (OC). These are reviewed technically by DGH and “subsequently deliberated, reviewed and approved in the Management Committee” which comprises representatives of not just the operator but also the ministry and DGH.

Gas output from Dhirubhai-1 and 3 gas fields in the KG-D6 block has fallen from 54 million metric standard cubic meters per day (mmscmd) achieved in March 2010 to 32.94 mmscmd this month instead of rising to the planned 61.88 mmscmd.

RIL has so far drilled 22 well on the fields instead of 31 committed by April 2012. DGH, the ministry told the panel, is asking “the operator (RIL) to expeditiously drill wells in line with approved FDP during the year 2011-12, which may help to revive the falling gas production from these fields.”

The company had to shut down four wells due to water ingress/other problems, it told the panel adding the DGH was carrying out well-wise performance analysis to ascertain the reasons of decline in gas production from existing wells.

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COMMENTS

Shadi Katyal

5 years ago

Why is any body surpise of such lack of any penality clause. After all it is Reliance and the company very foundation stone is laid on buy and buy the Govt officials and cheat the people.
We talk of Lok Pal and what not but have never looked into the true foundation.
When a nation has 35% Mp with charge sgeets f rape,kidnapping ,killing and what not and expect any rules from such rouge people and than talk of Lok Pal etc.
It is well known that RIL bought lot of oiland gas reserve where the ONGC could not find any minerals and yet after RIL bought the same wells ,suddenly gas came oozing. Was the report of non existance made after proper payments to officers incharge?
This is a good example and both the Govt and RIL were aware and maybe it was RIL who wrote the contract.
Add another SCAM, the national pride

Petrol price may be hiked by Re1 next month

While international price of gasoline (against which domestic petrol prices are benchmarked) are more or less at the same level (as at the time of last revision), the rupee has depreciated to about Rs52.70 to a US dollar

New Delhi: Petrol price may be hiked by about a rupee per litre from next month as the Indian currency has weakened against the US dollar making imports costlier, reports PTI.

The rate change may, however, need a political clearance as assembly elections in five crucial states, including Uttar Pradesh and Punjab, have been announced.

“While international price of gasoline (against which domestic petrol prices are benchmarked) are more or less at the same level (as at the time of last revision), the rupee has depreciated to about Rs52.70 to a US dollar,” a top official said.

The domestic rates, which were last revised on 30th November, are pegged at Rs51.50 to a US dollar exchange rate.

The average exchange rate in first fortnight of December was Rs51.98 to a US dollar, which has further deteriorated.

State-owned oil companies like Indian Oil Corporation (IOC) use fortnightly average of benchmark oil price and exchange rate to revise retail rates on 1st and 16th of every month.

The next review is due on 31st December and if the oil companies decide to pass on the exchange rate fluctuations to consumers, the new rates would be effective from 1st January.

“There is an under-recovery of about 85 paise (Rs0.85) per litre currently. After adding local sales tax, the desired increase in retail prices would be Rs1.02 per litre,” the official said.

Oil firms had, at the last review on 15-16 December, decided not to burden the consumers with Rs0.65-Rs0.70 per litre hike in petrol price needed at that time, as they felt Reserve Bank of India’s (RBI) intervention may help arrest fall in rupee’s value.

Petrol at IOC pumps in Delhi is currently priced at Rs65.64 per litre and the rates vary by a couple of paise at the pumps of Bharat Petroleum and Hindustan Petroleum.

The oil firms had in November cut petrol prices twice on drop in international oil rates. The companies reduced petrol prices by Rs2.22 per litre, or 3.2%, from 16th November, followed by a Rs0.78 per litre cut from 1st December.

However, it remains to be seen if the oil firms will get a political nod to increase the prices in view of assembly elections.

Petrol price was freed from government control in June last year but public sector companies continue to informally consult their parent oil ministry before taking a decision.

The government continues to control rates of diesel, domestic LPG and kerosene which were sold way below cost to keep inflation under check. The oil firms lose Rs12.95 per litre on diesel, Rs29.99 a litre on kerosene and Rs287 per 14.2-kg LPG cylinder.

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FM to kick off pre-budget meetings from 11th January

The first meeting would be held with agriculturalists, followed by a series of interactions with sectoral experts, representatives, industry captains and economists over the next ten days to get their feedback and inputs for incorporating them in Budget 2012-13

New Delhi: Amid economic slowdown, finance minister Pranab Mukherjee will hold brainstorming sessions with various stakeholders during his annual pre-budget meetings beginning 11th January, reports PTI.

The first meeting would be held with agriculturalists, followed by a series of interactions with sectoral experts, representatives, industry captains and economists over the next ten days to get their feedback and inputs for incorporating them in Budget 2012-13.

Mr Mukherjee is then slated to meet captains of industry on 13th January, followed by trade union leaders on 16th January.

Mr Mukherjee is expected to elicit views of different interest groups on arresting the economic slowdown and combating the impact of global problems.

The current fiscal has been a difficult year for the country's economy, with growth slipping to 6.9% in the second quarter this fiscal, the lowest in nine quarters.

Besides, industrial output in October saw a sharp de-growth of 5.1% as stock markets remained volatile driven by negative investor sentiment in India and abroad.

Social sector related groups will share ground realities faced by them with Mr Mukherjee on 17th January, followed by a meeting with CEOs of banks and financial institutions on 19th January.

Issues like bank recapitalisation, access to affordable financial services—especially credit and insurance—and interest rates are likely to be discussed in the meeting.

The pre-budget exercise will end with a discussion with economists on 20th January.

A wide range of issues like policy initiatives to fight sluggishness in growth, slump in industrial output and rising fiscal deficit targets are likely to come up for discussion.

Moreover, impending tax reforms like Direct Taxes Code and Goods and Services Tax may also figure in the discussions.

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