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With the depleting gas reserves in the KG-D6 Block the Union Government has swung into action to claim its own profit. In the absence of necessary approvals from the Ministry of Petroleum and Natural Gas and the Directorate General of Hydrocarbons the operator Reliance cannot recoup the falling production. The Government is now at crossroads: instead of penalizing Reliance for having failed to meet its production commitment, it will now have to answer the Reliance’s arbitration notice. Bureaucracy Today analyses how the Government lost its own profit petroleum.

Armed with Production Sharing Contracts (PSC) with the Government of India,Reliance Industries Limited (RIL) recently sold 30 percent of its stake in East Coast oil and gas fields to the overseas giant British Petroleumfor a whopping $7.2 billion. The development has much in-between-the-lines to be inferred. The company has realised a staggering $7.2 billion from the deal but the Government of India, the real owner of the resource, stands as a loserwith ameagre Rs.267 crores as ‘profit petroleum’ as its share in its treasury.
On posing the question howmuch the Reliance has earned from the project so far, Ministry officials told Bureaucracy Today that they do not know the exact number. It is intriguing that the Government is not keeping a tab as to howmuch the Reliance has earned fromthe production in KG-D6 Block since April 2009. No wonder it has run out of numbers to configure the loss it has suffered till now.



It may be recalled that the RIL had initially placed a field development plan (FDP) to produce 40 million standard cubic metres per day (mmscmd) of gas. The expenditure was pegged at $2.47 billion. Later the RIL submitted a renewed field development plan claiming that it would produce 80 mmscmd at the expense of $8.84 billion. It is only after the RIL realizes this $8.84 billion that the Government of India will start getting its share of profit petroleum. Tapan Sen, Member of Parliament and Member of the Standing Committee on Petroleum and Natural Gas, points out that the RIL has already realised $7.2 billion out of the $8.84 billion. Why can’t the Government take steps to claim profit petroleum and ascertain the time period within which the RIL will pull in the remaining $ 1.64 billion so that the Government share in profit petroleum may increase?
The renewed field development plan worth $8.84 billion was approved by the Ministry of Petroleum and Natural Gas in 33 days. Those were the golden days for Reliance as Murli Deora was the Petroleum Minister. Times and Ministers have changed since then.

CHANGE IN CIRCUMSTANCES
Even as the Ministry of Petroleum and Natural Gas’ growing impatience is evident from the fact that it is now mulling over ways to restrict the RIL from realizing its costs incurred in the development and operation of KG-D6 Block, industry experts say they fail to understand as to why the Government failed then to take legal action against the company. Even before the Government could plan to do anything legally to save its interests in KG-D6 Block, the RIL has gone de jure by slapping the arbitration notice on the Government. The Government has sought time till January 31, 2012 to reply to the notice. The notice came after the Government made its intention clear on disallowing the RIL from recouping the expenditure incurred in constructing production and processing facilities at D-1 and D-3 gas fields in D6 Block. The trouble for the RIL started after reports of a drastic production fall in D6 Block from the usual 60 mmscmd to 40 mmscmd. It may be noted that the aggressive field development plan supported by the DGH, was approved during Murli Deora’s tenure as Petroleum Minister for 80 mmscmd. The RIL was to produce 61.88 mmscmd of gas from 22 wells by April last year and 80 mmscmd from 31 wells by 2012.
On November 22, Petroleum Secretary GC Chaturvedi said the Petroleum Ministry would decide within 3-4 weeks on the action to be taken against Reliance Industries for its gas output falling below the target from the East Coast fields. The Secretary had said: “We had sought the views of the Law Ministry. Our Ministry is now examining their views. In the next three-four weeks, we will be able to decide on the future course of action.” On December 25, the Ministry of PetroleumandNaturalGas told the Parliamentary Committee that the Production Sharing Contract (PSC) for the block “does not provide for penalty” in case of a shortfall in production targets. Parliamentary CommitteeMember Tapan Sen in an interviewwith this publication expresses concern that the Production Sharing Contract (PSC) for the block “does not provide for penalty” taking the shortfall in production targets as a breach of the contract.According to the Ministry, it can only do so in an event when it ascertains that the RIL has not dug the committed number of wells.Bureaucracy Today learnt fromMinistry officials that the aspect is still being looked into but it feels the 40 per cent drop in the outputwas because the company had left the wells underutilized.
A Ministry source on condition of anonymity says, “The possibility that the entire KG-D6 block is not covered by an adequate number of wells cannot be ruled out because of which the productionmay showa downward trend.” This point has also been raised by the Comptroller and Auditor General in the performance audit of the PSCs. According to a Ministry source, “the Government of India is getting a raw deal in KG-D6 Block. It is due to numerous compromises made at various stages which have now accumulated to such an insecure position for the government.”