The Telegraph
Tuesday , February 25 , 2014
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Moily firm on oil stand

Moily: Fortifying views

New Delhi, Feb. 24: Reliance Industries’ contract with the government for the D6 gas block in the Krishna-Godavari basin off the Andhra Coast cannot be terminated as arbitration over sagging output is pending, petroleum minister M. Veerappa Moily has told Prime Minister Manmohan Singh.

He has also defended the decision to increase the natural gas price from April as the move would incentivise gas production and make production at various gas blocks viable.

The Prime Minister had asked Moily to respond to former Delhi chief minister Arvind Kejriwal’s letter demanding a status-quo on gas prices until the completion of the anti-corruption case Kejriwal had ordered.

The Delhi government is carrying on with the case after Kejriwal’s resignation.

A case was registered against Mukesh Ambani, Moily and former minister Murli Deora on the basis of allegations that the cabinet ministers colluded with Ambani to raise gas prices steeply. Kejriwal also wants the government to terminate the contract for non-compliance.

The oil minister has ruled out the termination of RIL’s contract even as the government has blamed the company for deliberately suppressing production by not drilling the required number of wells.

The company, in turn, has initiated an arbitration case because it blames the geology of the block for the fall in gas production.

Gas production from the offshore fields has been behind target since 2010-11.

Moily also told Singh about the process initiated by his predecessor S. Jaipal Reddy of penalising the company by disallowing a portion of the cost incurred.

While the contract provides for termination in case of a default by a contractor, Reddy in May 2012 had slapped a penalty of $1.005 billion. RIL had disputed the penalty and initiated arbitration.

“In view of the contractual provision under the PSC (production sharing contract), the government will not be able to terminate the contract on account of a shortfall in production as the matter is pending before the tribunal,” Moily said.

Gas price

Justifying higher rates for natural gas, the minister said the current price made some fields unviable and would force the country to increase imports of costly LNG.

“At the extant gas price of $4.2/mmBtu, many of the existing discoveries will not be commercial to be developed and exploited,” Moily said.

Oil ministry officials said many discoveries of ONGC, RIL and Gujarat State Petroleum Corp were not viable at the prevailing gas price.