RIL will not withdraw arbitration against govt in KG-D6 dispute

The total cost recovery that Reliance Industries has been disallowed from collecting so far is $2.75 billion, say regulatory filings


RIL’s partners BP Plc and Niko Resources are parties to the arbitration.
RIL’s partners BP Plc and Niko Resources are parties to the arbitration.

Mumbai: Reliance Industries Ltd (RIL) will not withdraw the ongoing cost-recovery arbitration against the government.

“We will not give up our legal rights. We will work constructively with our partner BP and find an acceptable solution (to the issue). I still think that our upstream business has long-term value,” Mukesh Ambani, chairman and managing director of RIL, said in response to shareholder questions at the company’s 42nd annual general meeting on Thursday.

RIL’s partners BP Plc and Niko Resources are parties to the arbitration. BP holds a 30% stake in RIL’s D6 block in the Krishna Godavari basin; Niko holds 10%.

After the meeting, RIL’s scrip fell 2.73% to close at Rs.1,029.15 on BSE, on a day the Sensex shed 0.1% to close at 28,423.48 points.

On 18 August, RIL in a regulatory filing to BSE had said that the government had disallowed the company from recovering a cost of $380 million relating to its KG basin gas production for 2014-15 for not meeting output targets. The total cost recovery disallowed to RIL so far is $2.756 billion.

“Every year, based on its own interpretation of the production sharing contract and assumptions MoPNG (ministry of petroleum and natural gas) revises the total cost it proposes to disallow and consequently aggregates the figure with the figures of the previous years. It also demands additional profit petroleum as government of India’s share,” RIL said in the BSE filing.

Profit petroleum refers to profits from gas production after recovering costs available for sharing between the contractor and the government.

“We also clarify that the government has already collected gross $81.7 million in gas pool account towards the aforesaid claim. We reiterate that all claims made by the government are denied by the contractor group,” RIL added.

According to the production-sharing contract, disallowing cost recovery means more profits to be shared between the company and the government. The oil ministry has demanded $51.6 million as extra profit share for 2014-15.

“On 3 June 2016, the company received a revised claim up to year 2014-15 with a disallowance of $2.756 billion on cumulative basis and consequent demand of government’s share of additional profit petroleum of $246.9 million also on cumulative basis,” said RIL.

Up to fiscal year 2013-14, the cost recovery proposed to be disallowed was $2.376 billion and the consequent demand of government’s share of additional profit petroleum of $195.3 million on a cumulative basis, RIL said in the BSE filing.

Gas production from the Dhirubhai-1 and 3 gas fields in the KG-D6 block was to reach 80 million standard cubic metres a day (mmscmd) at its peak, but fell steeply due to water and sand ingress in some of the wells. It is currently down to 10 mmscmd.

Ambani said the company is working with partner BP to increase production.

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