New Delhi, OCT 08 :
In a setback to the Oil Ministry, the Supreme Court has dismissed its petition against an order seeking disclosure of documents that formed basis for levy of USD 3 billion penalty on Reliance Industries over KG-D6 natural gas output not matching targets.
A three-member international arbitration panel, hearing Reliance and its partner’s challenge to the government levying penalty because of unutilised capacity due to production not matching targets, had asked the ministry to share an array of documents that formed basis for its actions.
The Oil Ministry first challenged the disclosure before the Delhi High Court, which on December 18, 2018 dismissed the petition. It then challenged it in the Supreme Court, which on August 5, 2019 dismissed it saying it was “not inclined to interfere” with the earlier order.
The government had between 2012 and 2016 disallowed Reliance and its partners from recovering the cost of USD 3.02 billion for KG-D6 output lagging targets. The penalty in form of disallowance of recovery of certain costs was levied because the Oil Ministry and its technical arm DGH felt that the output lagged targets because the company did not drill the committed number of wells on the fields and created excess capacity.
Sources said a three-member arbitration panel, constituted in 2015 to hear Reliance and its partner BP’s challenge to disallowance of cost recovery, had asked the Oil Ministry to share a host of documents, including those “sent, received or created” that “set out the reasons” for the government decision.
Reliance and BP believe that there is no provision under the Production Sharing Contract (PSC) signed for the KG-D6 block awarded to them under the first bid round of New Exploration Licensing Policy (NELP) of targets for oil and gas production and disallowing cost if they are not met.
Under NELP, contractors are first allowed to recover all their sunk cost before sharing profits with the government. Disallowing a part of the cost would not just result in contractors having to absorb those expenses but also result in higher profit share from oil and gas produced to the government. The government claimed an additional USD 175 million as its profit share after the cost disallowance in 2016.
The arbitration panel agreed to most of the 19 requests made by Reliance-BP for disclosure of documents by the government. These included one for “disclosure of earlier formal but unpublished guidelines in effect between 1997 to October 2007 concerning the classification and/or recovery of general and administrative costs incurred by contractors under NELP PSC”.
