Steep Fall in Gas Output: Rs 7000cr Fine on Reliance

Friday, May 4th, 2012 | by

The Ministry of Oil Resources has slapped a fine of $1.2 billion or Rs 7,000cr on Mukesh Ambani’s Reliance Industries Limited for a steep fall in the production of gas from its Andhra offshore field. The notice has stated that Reliance will not be granted consent to recover the cost of investment of $457, from its sale of gas made between 2010- 2011 and $778 million in 2011-12. This is the first time a notice of this kind is being served.

The act against Reliance follows owing to the company’s failure in achieving a target in the production of gas from KG-D6 field, which has been specified in the contract with the central government. This stands sharply in contrast with the government policy, where once a contract is entered into for auctioned fields, companies are allowed to recover their investments completely from the sale of oil or gas.

Gas volumes have dropped to 27 mcmd (million cubic metres per day) against 62 mcmd committed by Reliance, while it secured sanction for the $8.8 billion savings plan. Till now, Reliance has made an investment of $5.6 billion, with a recovery of nearly the entire amount. The company has blamed geological changes and frontier nature of the field regarding the steep decline in output, which is less than half of the set target.

However, the notice does not mean that Reliance will have to return the amount to the government, with an arbitration notice served on the ministry on 24 November, 2011.

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