Govt suggests Reliance be optimistic on cost recoup
After issuing a notice that will inflict a $1-billion (Rs 5,300-crore) burden on Reliance Industries Ltd (RIL), the Ministry of Petroleum and Natural Gas is keeping the doors open for adjustment in future cost recovery for the KG-D6 gas field. A senior ministry official on Friday said the government would consider RIL’s calculations in due course.
On Wednesday, the government told RIL it proposed to disallow certain cost reimbursements claimed by the company for the past two financial years. “Our notice has disallowed a total of $1.005 billion but we are awaiting the RIL response to it. Besides, RIL can always claim the disallowed cost in future years,” said the official who did not want to be named.
The company said in a statement on Friday it was entitled to recover all its costs under the terms of the production sharing contract (PSC) and “there are no provisions that entitle the government to disallow recovery of any contract cost as defined in the PSC”.
The official, however, defended the government’s move on the argument that the fall in production had jeopardised a number of investments in the user industry. For instance, a fall in production of a million standard cumbic metres per day (mscmd) would lead to a generation loss of 223 Mw. The company had estimated production of 80 mscmd this year, but revised it to 27 mscmd and then told the government it would further go down to 22 mscmd in 2012-13.
On November 23, 2011, RIL had issued an arbitration notice under the PSC on the issue. The company has alleged “wrongful denial” of cost recovery on the ground of lower production or under-utilisation of facilities. “RIL maintains that any such attempt by the government is unwarranted and violative of the PSC,” said the company.
It said since no arbitrator had been appointed by the government for nearly five months after the arbitration notice, RIL had filed a petition in the Supreme Court, under Section 11 of the Arbitration Act, for appointment of one on behalf of the government by the court.