RIL KG-D6 contract cannot be cancelled: Moily to PM

Reliance Industries' (RIL) contract for KG-D6 gas fields cannot be terminated pending arbitration on the issue of thecompany's production shortfall, Petroleum Minister M. Veerappa Moily has written to Prime Minister Manmohan Singh.

A senior ministry source, requesting anonymity, told IANS Monday that the Prime Minister's Office had forwarded for a response to the petroleum ministry a letter written by former Delhi chief minister Arvind Kejriwal demanding that the decision to hike natural gas prices be kept in abeyance till the completion of an anti-corruption case he had ordered while in office.

A case was registered against Moily, RIL chairman Mukesh Ambani, and former minister Murli Deora alleging cabinet ministers colluded with Ambani to steeply raise gas prices.

Kejriwal, who addressed the media last week, wants the government to terminate RIL's KG-D6 contract for non-compliance.

"In view of the contractual provision under the PSC (production sharing contract), the government will not be able to terminate the contract on account of shortfall in production as the matter is pending before the arbitral tribunal," Moily said in the letter.

The ministry had in 2012 ordered a penalty of over $1 billion on RIL for failing to produce gas in line with the pre-stated targets. It blamed the company for deliberately suppressing production by not drilling the required number of wells.

RIL has approached for arbitration against the order, saying the fall in output is owing to geological complexities and lower than anticipated reserves.

There is a PIL before the Supreme Court due for hearing March 4 seeking review of the government decision to hike the natural gas price from $4.2 to $8.4 million British thermal unit (mBtu) from April 2014, that has also sought a halt to the arbitration proceedings.

The government had in June 2013 approved the new price for all types of domestically produced gas at an average of the cost of LNG imported into India and international hub, or market, rates - a formula suggested by the C. Rangarajan Committee constituted by Prime Minister Manmohan Singh to look into issues concerning the oil and gas sector.

RIL was permitted to sell natural gas at the revised doubled price from April provided it gave a bank guarantee to be encashed be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1 and D3) fields in the eastern offshore KG-D6 block.

Regarding the hike in gas prices, Moily wrote that several gas fields of both RIL and state-run Oil and Natural Gas Corp (ONGC) were economically unviable at the current $4.2 rate, the source told IANS.