Parliament panel wants Reliance Industries to be treated as contractual defaulter

Lambasting Reliance Industries (RIL) for failing to implement approved plan for KG-D6 gas fields, a Parliamentary Committee has asked government to treat the failure as contractual "default" and take necessary action.

"Non-adherence by the contractor (RIL) to approved field development plan should be construed as 'default' and not just failure and remedial action by the (Oil) Ministry in this regard must be premised on 'default' by the contractor and not 'failure'," the Standing Committee on Petroleum and Natural Gas said in a report tabled in Parliament today.

The panel, headed by Aruna Kumar Vundavalli, asked the ministry to "explore all possible options and take corrective measures to increase the natural gas production from KG-D6."

With production falling from 55.89 million standard cubic meters per day (mmscmd) in 2010-11 to 26.18 mmscmd in 2012-13, the ministry and upstream regulator Directorate General of Hydrocarbons advised RIL to take certain corrective measures like drilling of committed quota of wells to increase natural gas production in KG-D6 block.

"However, the contractor (RIL) has failed to adhere to the corrective measures," the report said.

An expert commissioned by the Directorate General of Hydrocarbons (DGH) to study the decline in production, concluded that reserves in the main KG-D6 fields are as estimated earlier (10 trillion cubic feet) and remedial measures will help the production to go up.

RIL on the other hand blamed unforeseen geological complexities, like water and sand ingress in wells and sharp drop in reservoir pressure, for falling output. Based on production data, it lowered the reserves in the fields to one-third (3 trillion cubic feet) which it felt does not require additional wells to recover.

"Based on the report (of the expert), the cost dis-allowance amounting to nearly $1 billion has been imposed on the contractor (RIL) which the contractor has taken for arbitration," the report said.

The Committee said it has taken serious note of the ministry's statement that RIL failed to adhere to the approved field development plan both in terms of gas production as well as drilling and putting on stream the required number of wells, even after repeated reminders.

"In view of the above, the Committee opined that non-adherence by the contractor to approved field development plan should be construed as 'default' and not just failure," the report said.