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DGH seeks $800-mn cut in RIL costs on KG-D6

DGH seeks $800-mn cut in RIL costs on KG-D6
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In fresh setback to Reliance Industries, oil regulator DGH has recommended shaving off over $800 million from the cost incurred by the company on its...

New Delhi (PTI): In fresh setback to Reliance Industries, oil regulator DGH has recommended shaving off over $800 million from the cost incurred by the company on its flagging eastern offshore KG-D6 fields.The Directorate General of Hydrocarbons (DGH) recommended the reduction in view of production from the fields not matching the projections, sources with direct knowledge of the development said.

RIL in the accounts for 2011-12 submitted to DGH, claimed $4.215 billion as cost that is yet to be recouped from sale of oil and gas from the fields. The company has till date spent $10.05 billion on the block, which it can contractually recover from sale of oil and gas and is obliged to share profits or spoils with the government only after recouping those expenses. Sources said of the $4.215 billion cost that RIL stated was yet to be recovered, DGH made some deductions to put the contract cost that is to be recovered at $3.408 billion.

The cost recovery that DGH has disallowed is part of the $1.786 billion penalty it has recommended to be imposed on RIL for failing to produce pre-stated volumes of natural gas from KG-D6 fields. Based on its suggestion, the government has already issued a notice to RIL disallowing $1.005 billion in cost for shortfall in production during 2010-11 and 2011-12 ($457 million for 2010-11 and the rest for 2011-12). The Mukesh Ambani-run firm has initiated arbitration against the levy. The cost being disallowed now is part of that even though the matter is pending in arbitration, they said. The arbitration has not begun because the two arbitrators appointed by RIL and the government are yet to agree on a neutral presiding judge for the proceedings.
Mukesh Ambani visits KG-D6 fields
Kakinada: Reliance Industries Chairman Mukesh Ambani on Tuesday visited on-shore gas fields in KG-D6 block at Gadimoga near here. His visit marks the fifth anniversary of RIL's gas production in the Krishna Godavari Basin. Ambani who flew down from Mumbai in a special aircraft reached Rajamundry. From there, he went to the gas fields in a helicopter and reviewed production performance of various gas wells.
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