Govt says may appoint expert to assess Reliance block gas fall

NEW DELHI (Reuters) - The government may appoint an international expert to assess the reasons for the decline in gas output from Reliance Industries-operated D6 block in the east coast ahead of changes in gas pricing from April 1, Oil Secretary Vivek Rae said on Thursday.

Revision in gas pricing is expected to benefit Reliance, whose existing contracts for gas sales from D6 block in Krishna Godavari basin will expire on April 1, 2014.

Output from the block, which was expected to contribute up to a quarter of the gas supply in the country, has been falling since April 2010, cutting supply to power and other sectors.

While Reliance blames geological complexities for the decline, upstream regulator the Directorate General of Hydrocarbons believes production has fallen because the company failed to drill the promised number of wells.

"There is some technical dispute about the quantum of gas available in some discoveries in KG D6 block.. that matter needs to be resolved before we take a final decision on applicability of the new formula," Rae told reporters at an industry event.

The finance ministry and a parliamentary panel have urged the government to ensure Reliance delivers any shortfall of gas it owes to customers at the old prices of $4.2 per million British thermal units (mmBtu).

"That matter is under discussion and we will see how best to resolve it," Rae said, adding the committee overseeing operation of the block will decide on the reasons for decline in output.

"If necessary we will even get in international experts to give their independent opinion and once it is resolved then all roads will be cleared either way," he said.

Rae said his ministry had sought the opinion of the law ministry on levying additional penalties on Reliance for not producing the promised level of gas in 2012/13 financial year.

He said the government had already issued a notice to the company for a $1 billion penalty for the shortfall.

BP has a 30 percent stake in the block while Niko Resources owns a 10 percent share.

(Reporting by Nidhi Verma; editing by James Jukwey)