Government not honouring contracts on KG-D6 gas block, says Reliance

[1]

New Delhi: Amidst move to force Reliance Industries to sell gas from its main fields in KG-D6 block at old rates of USD 4.2, the Mukesh Ambani-run firm on Tuesday hit out saying the government was not honouring signed contracts and extraneous factors were being brought into business.
RIL, which has faced numerous delays in getting approvals and shifting goal-posts, said the country did not have a stable policy regime and this was responsible for exit of global energy giants like Royal Dutch Shell, BHP Biliton of Australia, Statoil of Norway and Brazil's Petrobras.
"It is there for everyone to see. We dont have a stable policy regime which is very very essential if you expect any investor to come in and invest either in technology or put in big risk investment that are required in (oil and gas) exploration, appraisal and development," RIL Executive Director P M S Prasad said on sidelines of a FICCI conference.
New Exploration Licensing Policy (NELP), under which RIL had won the eastern offshore KG-D6 block in 2000, has been continuously eroded by "taking away several of the rights (of companies)," he said.
The policy assures investor of freedom to market oil and gas produced from areas they explore. NELP also provided for market determined pricing of both oil and gas.
While the government is now identifying customers and nominating quantities to be sold, it is now mandating a price according to a formula given by a committee under Prime Minister's economic advisor C Rangarajan.
The price of gas according to the Rangarajan formula would have doubled to USD 8.4 per million British thermal unit in April 2014 when a revision in KG-D6 price is due, but the Oil Ministry is moving Cabinet with a suggestion made by Finance Ministry to ask RIL to sell gas it has failed to deliver in past two years at the old price of USD 4.2.
The Ministry in the note says gas from D1&D3 and MA fields in KG-D6 block should continue to be priced at USD 4.2 till the shortfall of past three years is met. New rates will, however, apply to gas produced from other fields like R-Series in the same block.
The old rate being proposed is besides the USD 1.793 billion penalty on RIL for producing less than targets even though the Production Sharing Contract (PSC) does not provide for output targets or companies being held to indicative production levels.
"As you see there is a continuous erosion of this NELP by taking away several of the rights that were given under the NELP. I don't want to go into the details but that is what is happening today. You bring in all kinds of extenous factors into the business, not honour the Production Sharing Contract (PSC), that is the worst thing that can happen. So where is the stability in policy," Prasad asked.
Asked what would RIL do in case the government forces old price, he said, "that is the worst that can happen" and indicated the company could take legal action against the move.
"I dont know if that is true. If that is true, then that is a problem," Prasad said when asked to comment on the reported move to force RIL to pay for gas at old rates. "We clearly will say it is violation of PSC. So whatever is the dispute resolution mechanism, we will have to resort to," he added.
Prasad said several foreign companies like BG, Shell, BHP, Santos of Australia, Statoil and Petrobras were present in the country but "they all have left." He identified two reasons for their exit - low prospectivity of Indian basins and fiscal instability.
"You have to compensate poor prospectivity by giving attractive fiscal regime which we are anyway not giving and then you take away whatever little was given," he said. India needed energy security if it was to grow, he added.