RIL fined for extracting gas from ONGC fields (Flickr)

The Union Petroleum Ministry of India has slapped a fine of $1.5 billion on  the Mukesh Ambani-owned Reliance Industries Limited (RIL) for extracting natural gas from parts owned by the Oil and Natural Gas Commission  in the Krishna Godavari Basin.

Directorate general of hydrocarbons (DGH)  officials said the amount of the fine was calculated on the notified price of natural gas and not the $4.2 per million British thermal unit price at which RIL sells gas. “Since the gas produced was out of ONGC’s share, the price applicable was the notified rate,” said an official, reports the Business Standard.

The petroleum ministry had sent an advisory to the directorate on the calculation of the quantum of fine, according to sources in the knowhow. Reliance was allowed a tax concession and deduction of the royalty amount paid on the gas.

The company has been given 30 days to make the payment.

The government’s  instructions to the DGH came on the heels of a report submitted by the Justice AP Shah committee that found RIL and its partners BP and Niko Resources guilty of extracting and transporting gas from the ONGC basin.

The shah panel was appointed to look into the dispute. ONGC claimed that RIL was drilling into ONGC’s part of the bloc.

The Shah committee found that RIL had benefitted from the migration of gas from OGC-owned gas fields. According to the agreement of product sharing cost (PSC),  RIL was supposed to use unitisation in calculating cost, which it did not. Unitisation is a technical term for valuing shares in case of overlapping of reservoirs of natural gas.

The company in a statement said, “The claim of the Government is based on misreading and misinterpretation of key elements of the PSC and is without precedent in the oil & gas industry, anywhere in the world. According to the Government, the Contractor is restricted to producing only that quantity of hydrocarbon as they existed at the point in time when the PSC was signed. This approach overlooks the fundamental fact that at that stage the work of exploration of the block has not even commenced and a complete lack of data makes it impossible to estimate the quantity of hydrocarbons available in the block.”

The company further added, “The liability of the Contractor has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary. RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government. RIL remains convinced of being able to fully justify and vindicate its position that the Government’s claim is not sustainable.”