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The petroleum ministry has sought legal opinion on levying an additional penalty of $781 million (`4,959 crore) on Reliance Industries Ltd (RIL) for failing to produce pre-stated volumes of natural gas in 2012-13 from its flagging KG-D6 field, off the eastern coast.
Petroleum Secretary Vivek Rae said the government has already issued a notice to RIL for a $1.005 billion (`6,381 crore) penalty for shortfall in production during 2010-11 and 2011-12, to which the Mukesh Ambani-run firm has initiated arbitration against the levy.

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“We have already issued a notice for the penalty of $1 billion. For 2012-13, we are examining what needs to be done, whether the higher penalty is to be imposed and if so in what manner. We are seeking the advice of the Law Ministry right now,” he told reporters on the sidelines of a conference in the capital. The Directorate General of Hydrocarbons (DGH) had in July recommended to the petroleum ministry that $781 million of the cost RIL has incurred in KG-D6 fields be disallowed for producing only an average of 26.07 million metric cubic metres per day (mmcmd) of gas as against the target of 86.73 mmcmd in 2012-13. This will be in addition to $1.005 billion in cost recovery already disallowed for output falling short of targets during 2010-11 and 2011-12.
The arbitration has not begun because the two arbitrators appointed by RIL and the government are yet to agree on a neutral presiding judge for the proceedings.
As per the production sharing contract, RIL and its partners BP Plc and Niko Resources are allowed to deduct all of the capital and operating expenses from sale of gas before sharing profits with the government. Creation of excess or unutilised infrastructure impacts government’s profit share and this is being sought to be corrected by disallowing part of the cost.
DGH stated that after cost disallowance, RIL would be required to pay $114 million in additional profit petroleum to the government for 2012-13 in addition to $103 million that was already due.
No higher gas price for RIL?
New Delhi: The oil ministry is moving Cabinet to deny Reliance Industries a higher price of gas produced from its main fields in the eastern offshore KG-D6 block till the dispute over the reasons for output not matching targets is resolved.
The ministry wants the current rate of $4.2 per million British thermal unit to continue to apply for gas produced from the D1 and D3  fields even after expiry of the current term on March 31, 2014

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