New Delhi: Slamming the move to restrict cost it can recoup from flagging KG-D6 gas fields, Reliance Industries has said it has slapped an arbitration notice on government against the "violation" of the signed contract.
"The Production Sharing Contract (PSC) contains no provision which entitles the Government of India to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilised," RIL said in a statement.
While the PSC allows operator to recover 100 per cent of their exploration and production costs and does not link cost recovery to output, the Oil Ministry was to restrict this in proportion to the gas output which has dipped by over 30 per cent over the past one year.
"All investments in the exploration, development and production of hydrocarbons from KG-D6 were made by Reliance and its foreign partners at their own risk, and not by the Government of India (GoI)," the statement said adding the company and its partners are entitled under the PSC with the GoI to recover their full costs from the revenues generated by production from the block.
"The investment made in KG-D6 production facilities has been only partly recovered and the return on the investment so far is less than the cost of the capital," it said.
RIL has built facilities to handle 80 million cubic metres per day of gas production, but the fields are producing about 41 mmcmd, down from 61.5 mmcmd achieved in March 2010.
The oil ministry wants to "disallow expenditure incurred in constructing production/processing facilities at the Dhirubhai-1 and 3 gas (D1 & D3) fields in the KG-D6 block that are currently under-utilised/have excess capacity because of falling output".
RIL said "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 GoI to have the company's entitlement to recover its costs, and the validity of the stance adopted by the Ministry of Petroleum and Natural Gas, finally determined by an independent tribunal."
"The company will seek a hearing in the arbitration at the earliest possible date and expects that the GoI will seek to do likewise in the interests of the energy sector in India and the investments therein," the statement added.
Falling pressure and water incursion have pushed down output from the D-1 and D-3 fields in the Bay of Bengal from 54 mmcmd in March, 2010, to less than 35 mmcmd now, as opposed to the targeted 61.88 mmcmd. A further 7.1 mmcmd comes from the MA oilfield in the same licence area.
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