Gas migration row: RIL charged 2% interest rate over Libor

The penalty imposed on Reliance Industries Ltd for producing Oil and Natural Gas Corporation’s share of natural gas has come with an interest rate of 2% over Libor. This has taken the net payable amount to $1.55 billion.

Besides this, the ministry of petroleum and natural gas is seeking $175 million from RIL as additional cumulative profit till March 31, 2016. While giving RIL 30 days to pay up, the ministry of petroleum and natural gas has threatened “further actions” for breach of the provisions and obligations committed under the production sharing contract between the contractors and the government.

From the gross penalty of $1.47 billion, royalty paid to the government amounting to $71.71 million has been deducted while $150 million has been added. The gross amount has been calculated on the basis of 338.332 million British thermal unit of natural gas migrating from ONGC lease area to RIL. The penalty has been imposed after the A P Shah committee submitted its recommendations in August 2016.

The marketing margin charged by RIL has also been taken into account. The government has commuted “the restitution amount” on $4.2 price from April 1, 2009 to October 31, 2014. For subsequent volumes, gas price notified from November 1, 2014 forms the basis.

RIL’s KG-D6 block sits next to ONGC’s lease area Godavari Petroleum and Mining Lease (PML) and KG-DWN-98/2. In July 2013, ONGC wrote to the DGH stating there was evidence of lateral continuity of gas pools of the ONGC blocks with that of RIL. Consequently, ONGC sought data on RIL’s block.

The Shah panel recommendations were based on earlier technical study carried out by DeGolyer & McNaughton (D&M) that said till March 2015, 7 billion cubic metre gas migrated from ONGC’s KGDWN-98/3 and 4.1 bcm from Godavari PML. The quantum of gas migrated for 2015-16 has been worked out on the basis of forecast made in the D&M report.

RIL made discoveries in the KG-DWN-98/3 block (KG-D6) in 2002. An Initial Development Plan was approved in November 2004 and an addendum to the plan in December 2006.

The Mukesh Ambani-led company has BP as a 30 per cent partner and Niko as a 10% partner in the block. RIL drilled four development wells in the block between December 2006 and November 2007 and started commercial production on April 1, 2009.

In its letter, the ministry said there was no extra-contractual right granted to the contractor that enabled it to produce gas, regardless of the source. Since the contractor did not pursue a joint development plan with ONGC, and the contractors have not given the migrated gas as a gift or largesse, the action of contractors had no lawful justification.

Besides the penalty, the ministry of petroleum and natural gas is scrutinising the role played by state-owned ONGC, the directorate general of hydrocarbons (DGH) and the then Congress-led government, regarding the gas migration row of KG-D6.

“There is an amount of responsibility on the then government, DGH and ONGC on the gas migration case. We are looking into the role of all the stakeholders and have also taken administrative initiatives to bring out the facts. Whoever is responsible will be in public domain and the country should know what is black and what is white,” Petroleum Minister Dharmendra Pradhan said on Thursday.