The Telegraph
Monday , January 28 , 2013
Since 1st March, 1999
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Defence bar on RIL gas blocks

New Delhi, Jan. 27: Reliance Industries and its partner BP plc’s KG-D6 gasfields and gas discovery area NEC-25 are among 14 oil and gas blocks that have been declared “no-go” areas by the defence ministry, which effectively bars any exploration or production activity.

The defence ministry has either withdrawn or withheld clearances for 47 oil and gas blocks. Of these, 14 have been classified as no-go areas, sources privy to the development said.

RIL-BP’s KG-DWN-98/3, or KG-D6 block, has been declared as no-go as it overlaps with a proposed naval base.

Last month, The Telegraph had reported that the Indian Navy was preparing to commission a new secretive strategic base on the east coast next year that would serve as the home port for the warships that sail to Southeast Asia, the South China Sea and the Pacific.

Spread over 20 square kilometres, it is called Project Varsha, which will be located at Ramkonda, about 50 km south of the Eastern Naval Command’s headquarters in Visakhapatnam.

It couldn’t be immediately confirmed whether Project Varsha was the proposed naval base that had cast a pall of uncertainty over the oil and gas blocks in the Krishna-Godavari basin.

RIL could not be reached for comment on the latest twist in the KG-D6 saga. Gas production from KG-D6 has fallen dramatically since it touched a peak of 55 million standard cubic metres of gas a day (mmscmd) in August 2010. Recent reports suggest that output at KG-D6 has fallen to an all-time low of 20.88mmscmd in the fourth week of January — a setback that has been blamed on the complexities of extracting gas from a deepwater gasfield.

KG-D6 was awarded to RIL in 2000 by the cabinet after clearances were obtained from all ministries concerned. It has been producing oil since September 2008 and gas from April 1, 2009.

RIL-BP’s Mahanadi basin block NEC-OSN-97/2 (NEC-25), where sizable gas discoveries have been made, has also been classified as a no-go area as it is close the to missile launching range/the air force exercise area.

Sources said the other 12 no-go blocks were with state- owned ONGC, Cairn India and Australia’s BHP Billiton and reasons cited for withdrawing clearance included being close to missile launching range, overlapping with the proposed naval base, the naval firing range and air Force exercise area.

None of these oil and gas blocks have started commercial production.

Companies such as RIL have already invested $15 billion since 2000.

Sources said the newly-constituted cabinet committee on investment (CCI) was likely to consider this week giving clearances to the 47 oil and gas blocks where the defence ministry had either withdrawn clearances or imposed stringent conditions.

Last week, finance minister P. Chidambaram had indicated that the CCI would meet for the first time towards the end of this month when clearances to oil and gas blocks would be considered.

Sources said the petroleum ministry had moved a note for the CCI meet in which it had argued that the withdrawal of clearances now would lead to disputes and arbitration between the government and the companies. This will damage the investment climate and could severely impact the future growth of the sector.

According to the production sharing contract signed between the government and the firms such as RIL, damages for breach of the contract can be sought. Besides the 14 no-go blocks, the defence ministry has put stringent conditions on 32 exploration blocks.

Sources said the conditions include firms not locating any pipelines or structures on sea surface in the blocks cleared for exploration and production activities.

Subsea/submerged permanent structures, if any, are to be located more than 100 metres below sea surface or outside the DRDO/Indian Air Force danger zone area (on sea surface) or naval exercise areas, they said adding the conditions were impractical.

The commerce ministry has refused to grant clearance to one block.

The oil ministry maintains that the withdrawal of clearances would lead to an exodus of foreign firms, which had been promised a conducive investment environment, thereby undermining the credibility of the government.

The ministry is seeking the CCI’s approval for relaxing the stringent conditions on 32 exploration blocks and clearances for the 14 no-go blocks.