This Article is From Dec 07, 2014

Oil Ministry May Dip Into Reliance Industries Incremental Gas Price Hike Revenue Account

Oil Ministry May Dip Into Reliance Industries Incremental Gas Price Hike Revenue Account

New Delhi: The government may dip into Reliance Industries Ltd's incremental gas price hike revenue, accruing in a pool account, to recover its dues in the wake of the contractor failing to meet certain KG-D6 output targets.

While announcing a 33 per cent hike in natural gas price to $5.61, the government had on October 17 said that RIL will continue to get the old rate of $4.2 for the main D1&D3 gas field in KG-D6 block. The incremental $1.41 per unit will go into a gas pool account, managed by GAIL India, till the dispute over fall in output is settled.

In its gas price hike proposal, the Oil Ministry, however, also proposed to the Cabinet to use the revenue accruing into this account to recoup $195.341 million of additional 'profit petroleum', informed sources said.

The ministry says this is the additional profit petroleum that the contractor is liable to pay to government, after $2.376 billion out of $10.441 billion cost incurred on KG-D6 fields was disallowed because of output from D1 and D3 fields not meeting the targets in past four years.

RIL and its partners disputed the cost disallowance, saying the output falling to less than a tenth of planned 80 million standard cubic meters per day was because of geological complexities and the signed contract does not provide for such cost disallowance.

An arbitration was subsequently initiated in the matter.

Oil Minister Dharmendra Pradhan told Parliament in July that his ministry has instructed GAIL and Chennai Petroleum Corp Ltd (CPCL) to deduct the profit petroleum due to government from the money they pay to RIL for buying gas and crude oil from KG-D6 block respectively.

They, however, expressed inability to do so because GAIL had not been buying gas since June 2013 and CPCL lost on a tender to buy oil in April this year, sources said.

Mr Pradhan last week told Rajya Sabha that the possible alternatives for effecting the recovery of additional profit petroleum from the contractor were being worked out.

The ministry now plans to recover the dues from the gas pool account, sources said.

The gas pool account, where about $4 million accrues every fortnight, started functioning last month when first bill at revised gas price was raised.

Sources said the ministry may wait for the account to swell to at least $20-25 million before dipping into it.

No operational details of the gas pool account have so far been announced.

RIL and its partners - UK-based BP plc and Canada's Niko Resources - want the money accruing to them in the account to be paid with market interest rate if and when they win the arbitration.

However, with the accruals being used to settle profit dues, it remains to be seen if the government will dip into its budget to pay for the due sum along with interest, they said.