RIL entitled to recover cost on unviable discovery: PAC

The Parliament’s Public Accounts Committee on Thursday said Reliance Industries (RIL) is entitled to recover all cost incurred on unviable gas discoveries as the Directorate General of Hydrocarbons (DGH) had allowed it to retain the entire KG-D6 block area.

The PAC, which went into the 2011 Comptroller and Auditor General's report that castigated the petroleum ministry for allowing RIL to retain the block in contravention of the production sharing contract, said exploration cost on unviable finds cannot be disallowed.

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According to the rules, only the area where discovery is made is allowed to be retained after the exploration period.

In its report tabled in Parliament, PAC said delineating development and discovery areas from a vast area given for exploration requires technical expertise.

And, the block oversight committee, comprising ministry officials and DGH, as well as DGH had on the request of RIL allowed it to retain the block area as discovery area.

“Therefore, the exploration costs incurred by the contractor (RIL) on unviable discoveries cannot be disallowed as the contractor is entitled to recovery contract cost out of a percentage of total value of petroleum produced and saved from the contract area as per the PSC,” the report said.

Contract cost is the expenditure incurred in exploring and/or developing a discovery.

“We recommend that the ministry of petroleum and natural gas should review the determination of the entire contract area as ‘discovery area’ strictly in terms of the PSC provisions,” CAG had said, asking for delineation of the discovery area and relinquishment of the rest.

On the $2.3 billion expenditure that the ministry had disallowed as penalty for KG-D6 gas output lagging targets due to non-drilling of committed wells, PAC said RIL has invoked arbitration in almost all the cases where the government has disallowed costs.

It noted that the "ministry in their submission before the committee agreed that there were anomalies in the provisions" of the PSC.

"The Committee are of the view that a strong dispute resolution mechanism should be put in place to address the concerns of both parties," the report said.