BP & Niko join RIL fight against gas output fines

The two firms filed separate arbitration notices earlier this week, a move that will help them benefit from revised natural gas prices

Reliance Industries Ltd (RIL)’s partners — BP and Niko Resources of Canada — have decided to formally join RIL in an arbitration against the government levying penalties for KG-D6 gas production falling short of target.

The two have made the move since a natural gas price rise, to kick in from April 1, might not accrue to them.

The Mukesh Ambani-controlled RIL, which holds 60 per cent stake in the field, has been allowed to charge more for gas. But the petroleum ministry was against giving BP and Niko Resources the same leeway because they were not party to Reliance’s arbitration proceedings against the government over low gas yield.

TEAR GAS

• BP and Niko Resources join RIL in fight against penalties for KG-D6 gas output falling short
• The two have made the move since a natural gas price rise, from April, may not accrue to these
• RIL (60% in the field) has been allowed to charge more
• But govt was against giving both same leeway as they were not party to RIL arbitration

Spokespersons for BP and Niko could not be contacted despite repeated attempts. Output from the the KG-D6 block over the last four years is 154 million standard cubic metres a day (mscmd), short of initial projections.The government has fined Reliance $1.797 billion for the shortfall.

Last December, the Cabinet had okayed a higher gas price for Reliance, provided the company furnished a bank guarantee until arbitration over the shortfall in the field’s output was over. The price of gas is set to double to $8.4 a million British thermal units (mBtu) on April 1, from the current $4.2, based on a formula suggested by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

RIL had mooted the idea of a bank guarantee on October 31 in a letter to the ministry. “The contractor, pending resolution of the dispute, is willing to secure, if necessary, by a bank guarantee in favour of the Government of India, the differential between the existing price and the revised price realised by the contractor for gas saved and sold from D1-D3 after April 1, 2014,” it said.

The guarantee is for the amount Reliance would earn from the new gas price. The government can encash it if it is proved Reliance deliberately suppressed gas production.

RIL and BP attributed the decline in D1 & D3 output to geological complexities like drop in reservoir pressure and ingress of water and sand.

RIL took the ministry to court in 2012, saying the contract does not provide for the levy of a $1.8 billion penalty for output not being in line with projected production profile.