KG basin: Govt stops issuing Reliance-BP penalty notice

The government has stopped issuing penalties on Reliance Industries and its partner BP plc for natural gas production from eastern offshore KG-D6 fields not matching the targets after the matter went into arbitration, according to an RTI reply by the DGH and sources.

While a challenge by Reliance-BP to the imposition of penalties in the form of disallowance of recovery of a part of the cost of incurred on the fields led to the government stopping issuing notices after 2016, a similar arbitration proceeding had not prevented it from selling shares, seizing dividends and confiscating tax refunds - totalling about $1 billion, to recover retrospective tax dues from Cairn Energy Plc of UK.

The government had between 2012 and 2016 disallowed Reliance from recovering the cost of $3.02 bn for KG-D6 output lagging targets, but no notice was issued after that even though production has plummeted to a fraction of the projections.

The Directorate General of Hydrocarbons (DGH) in reply to an RTI stated that in all, four notices were issued that disallowed recovery of a part of the cost incurred by Reliance-BP in producing gas from Dhirubhai-1 and 3 (D1&D3) fields; the last one being on June 3, 2016.

DGH in the RTI reply declined to share copies of the notices on grounds that the information was "commercial confidence of the third party" and said details cannot be disclosed because "the subject information is subjudice before Arbitral Tribunal/Courtof Law." While emails and text messages sent to Oil Secretary M M Kutty and DGH seeking comments remained unanswered despite reminders, sources said the notices were stopped as the issue was being heard by an international arbitration panel and it would have tantamounted to contempt of proceedings if the government were to go ahead and keep imposing penalties.

Emails sent to Reliance and BP soliciting comments too remained unanswered.

A three-member arbitration panel was constituted in 2015 to hear Reliance-BP challenge to disallowance of cost recovery.