The Planning Commission has described the move to penalise Reliance Industries (RIL) for the production shortfall of natural gas from two key blocks of the KG-D6 basin as “a bad precedent”.
In a letter to the petroleum ministry issued with the approval of deputy chairman Montek Singh Ahluwalia, the Plan panel has noted, “it could impact adversely on the investment climate in the same way as retrospective tax amendments did”.
It has also rapped the petroleum ministry for trying to approach the Cabinet for a view on it without appointing an international consultant to examine the issues.
The Commission has cautioned this will create the possibility of potential arbitrariness in an area where the government is trying hard to attract private investment and modern technology.
The Plan panel observations were made on a day when petroleum minister M Veerappa Moily has accepted there is reason to appoint such an expert. “There are world renowned experts who definitely can go into these things and can come out with the truth. We don’t want to prevent any truth from coming out,” he told reporters after speaking at a seminar.
Output from RIL-owned D1and D3 blocks had hit a peak of 66.35 mmscmd in 2010 before falling to a less than a sixth of it. Moily’s ministry has said they need to determine whether the depleted output was due to geological constraints or was a default by the company for failing to fulfil the mandated investment in the fields.
The ministry has consequently moved a Cabinet note saying that RIL’s output from the two fields should not be priced at the revised new price of approximately $8.4 per mmBtu till either the shortfall is made good or it is proven that it was due to factors the company could not control for.
In its defence the ministry has quoted the finance ministry in the Cabinet note too. But Ahluwalia’s officers have pointed out that “a perusal of the Cabinet note shows that the finance ministry has only listed this as one of the alternatives”.
If the note is approved by the Cabinet Committee on Economic Affairs, RIL will have to deliver the 1.196 trillion cubic feet shortfall it has run-up at the old price of $4.2 per mmBtu. It has to also pay a penalty on the same.
But the Commission has said for this to happen the provisions of the production sharing contract would have to be studied to ascertain whether such a penalty can be enforced or is there a provision for arbitration.
Instead the Plan panel has opined that the reasons for the production shortfall have to be considered by a Management Committee, headed by the directorate general of hydrocarbons. “If it is approved then the reasons for non-performance are implicitly accepted and the issue of penalty does not arise,” it contended.