Economy Aug 22, 2013
New Delhi: The petroleum ministry may approach the cabinet soon with a response to a finance ministry suggestion that Reliance Industries be asked to sell gas it has failed to deliver at the old price.
Within days of the cabinet approving a gas pricing formula that will double rates to $8.4 per million British thermal units from April 2014, the finance ministry asked the petroleum ministry to "examine for appropriate action" suggestions made in the media.
These were putting a cap up to which rates can be raised and forcing RIL to sell the quantity it had committed but failed to deliver in the past three years at the old rate.
Sources with direct knowledge of the developments said the petroleum ministry was examining the issue and will decide on the next course of action in a few days.
One option is to approach the cabinet with a status report. The ministry, sources said, may compile all the facts and inputs and present them to the cabinet for a decision.
The ministry's technical advisor, DGH, has already cited practical difficulties in implementing the finance ministry's suggestions.
The Directorate General of Hydrocarbons (DGH) on 1 August wrote to the ministry, saying production estimates outlined when investment plans are approved much before a field is put to production vary vastly with subsequent targets approved annually by an oversight panel headed by the DGH.
"In most cases, the projected production in the FDP (field development plan) and in the annual work programme would not be identical. This is because of the dynamic nature of exploration and production activities, which need to be adapted to suit the ground realities and operational
requirements," it wrote.
Gas output at RIL's KG-D6, which started in April 2009, touched a peak of 69.43 million standard cubic meters per day in March 2010 before unanticipated water and sand ingress shut wells, leading to output lagging estimates set in 2006.
While current production of less than 14 mmsmcd from KG-D6 is way short of the 86 mmsmcd target outlined in the 2006 field development plan, it would not be in wide variance with the annual output target approved by the Management Committee (MC) for 2013-14.
The DGH said a decision would have to be taken on which projected production figure would constitute the target - one outlined in field development plans or in annual budgets.
"In such a scenario, calculating the shortfall quantities to be billed at the old gas price would become difficult due to the shifting nature of goal posts," DGH wrote.
The ministry's technical adviser found it difficult to monitor the actual output vis-a-vis targets because a block like KG-D6 can have multiple gas fields and some of them could produce more than target while others could be less and the figures for the entire block could be totally different than initial estimates.
The DGH also highlighted difficulties in adhering to production deadlines because of "various operational reasons".
The finance ministry had on 4 July written that "once Reliance overcomes technical difficulties of producing gas at the KG-D6 field, the government must ensure the company delivers the shortfall it still owes at the old price of $4.2 per million BTUs rather than getting the benefit of the new price."
"The 'shortfall' will essentially be the cumulative 'targeted production up to March 30, 2014 minus the actual cumulative production during the same period. However, there are certain difficulties in estimating both the targeted production as well as actual production," DGH wrote to the petroleum ministry.
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