Govt won't rush into arbitration on RIL notice: OilMin

Days after Reliance Industries slapped an arbitration notice on the government against its move to limit the cost the company can recoup from flagging KG-D6 gas fields, the oil ministry today hinted that it would not like to rush into an arbitration.

It said it would study the issue before deciding on the move to make.

"We have got a letter from RIL. Whatever issues have been raised, we would study and whatever needs to be done, will be done," Minister of State for Petroleum and Natural Gas R P N Singh told reporters here.

The ministry has been contemplating action against RIL for acute pressure drop and water ingress bringing down output from Dhirubhai-1 and 3 gas fields in KG-D6 block, to about 34 million cubic meters per day compared to 61.88 mmcmd target, by limiting the amount of expenditure it is allowed to recoup.

"We are clearly not rushing into (arbitration)... We will look into issues raised by RIL," Singh said.

The November 24 arbitration notice gives the ministry 30 days time to initiate steps like appointing arbitrators.

Sudhir Bhargava, Additional Secretary, Ministry Of Petroleum and Natural Gas stated that RIL had "only sent a letter" and not an arbitration notice.

"There is no arbitration notice," he said.

Singh said the ministry will act "as soon as possible" on the RIL notice.

Asked if the ministry was contemplating punitive action, he said "we are considering several things. The fall in output at KG-D6 is a matter of concern for the nation and for us."

While action is contemplated against RIL for output being less than target, no incentive will be given to operators if production is higher than targets, Singh said.

RIL's KG-D6 fields produced more than 61.5 mmcmd of output by March 2010, 50% more than the target for 2009-10. And the production was lower than the target only for one year, 2010-11.

RIL, in November 24 notice, stated that restricting cost recovery— now at 100% — in proportion to the gas output was against the Production Sharing Contract (PSC) it had signed for KG-D6 block in 2000.

The ministry and its technical arm DGH are calculating as to how much of the $5.693 billion expenditure RIL has incurred on building facilities— which can handle up to 80 mmcmd of output— can be disallowed.

The New Exploration Licensing Policy, under which RIL had won the KG-D6 block in the first bid round in 2000, allows operators to recover 100% expenditure on exploration and production before sharing profits from the field with the government. It does not link cost-recovery to output.