In the court of people 1

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Information about In the court of people 1
Business & Mgmt

Published on March 13, 2014

Author: Tushar2014



Details of the two PILs filed against RIL and others in Supereme Court

    IN THE COURT OF PEOPLE ISSUE / CONTENTION RIL RESPONSE Deliberate reduction in gas production and hoarding of natural gas Not even an iota of substance in the allegation. This allegation betrays complete disregard of the technical realities of the process of production of natural gas from reservoirs. Hoarding is technically impossible. The AIDP (Addendum to the Initial Development Plan) was based on seismic data that suggested connectivity between the small deposits outside the main channel, in which case it would help drain the channel by adding wells in these areas. Experience has shown that these studies – which are based not on actual drilling but by use of other equipment – did not give the correct picture due to the nature of the sands, and that in fact there is no connectivity between these deposits and the main channel. There is a dispute between the Contractor and the Union of India on the issue of whether drilling more wells would produce more, and will be resolved in the arbitration proceedings after factual and expert evidence. It is a known and an accepted fact that early estimates of production from gas fields are often unpredictable and may prove to be incorrect. Estimates given as to production and reserves are necessarily subject to significant variation. Besides, the only means by which the Contractor can recover its contract costs is by producing and selling gas from the KG-D6 Block. In particular, the Contractor does not recover the time value of money associated with its investment of risk capital (eg, cost of capital) and delaying recovery of contract costs by hoarding gas would increase such costs (which are borne by the Contractor). Complaints about hike in price of natural gas Requirement that gas be sold at market price reflects the central objectives of the NELP. The NELP PSC mandates that gas be sold at the market price.

    ISSUE / CONTENTION RIL RESPONSE The revision of price based on the formula proposed by the Rangarajan Committee, will benefit PSUs such as ONGC and OIL. The Contractor produces only some 15% of the total quantity of domestically produced gas to which the pricing formula or basis applies. The Petitioners ignore the fact that 70% of domestically produced gas comes from PSUs such as ONGC and OIL. The main beneficiaries of an increase in the price of domestically produced gas will be the PSUs and the Government itself (through royalties, taxes and an increased share of profit petroleum). Failure to effect cost recovery disallowance and credit BP's consideration for assignment of 30% Participating Interest Allegation is misconceived for the following reasons: • Consideration that was paid by RIL was for a package of 23 blocks (being 30% share of rights and obligations under the relevant production sharing contracts) of which 21 was approved by GOI. • Having assigned 30% participating interest in the 21 blocks, RIL gave up all future interest in any share of profit petroleum and right to recover contract costs in respect of that 30% participating interest. • RIL have not by any stretch of imagination recovered its contract costs by selling 30 % participating interests in the KG D6 Block to BP. • Assignment of interest/ farming out is a common practice in the oil and gas industry. Failure to take action on CAG report The issues brought about through the CAG are now pending with the PAC (Public Accounts Committee) and the Contractor has fully complied with all the requirements of the audit process. Contractor’s failure to relinquish acreage Contractor did not retain any discovery area in contravention of the PSC. The Contractor was entitled to the entire contract area as a discovery area because the available information and technical analysis and

    ISSUE / CONTENTION RIL RESPONSE interpretation of that data appeared to demonstrate presence of a multiple-channel Turbiditic reservoir system existing almost throughout the Contract Area. The CAG appears not to have appreciated the relinquishment provisions in the PSC. RIL has in fact relinquished some 70% of the Contract Area and the Government has issued an order to relinquish about 81% of the contract area. RIL has retained only those areas in respect of which it holds a mining lease or is to file a development plan. Natural Gas should be sold at rupee terms and not at US dollars The entire PSC accounting is in US Dollars and the price of the gas has necessarily to be fixed in dollar terms. Oil is also priced in US Dollars under the PSC. Composition of Rangarajan Committee - lack of technical experts Composition of the Rangarajan Committee was as follows: (a) Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister; (b) Justice Shri Jagannadha Rao, former Judge of the Supreme Court; (c) Shri B. K. Chaturvedi, Member (Energy) of the Planning Commission (and former Cabinet Secretary and Petroleum Secretary in Government of India); (d) Prof Ramprasad Sengupta, Distinguished Fellow of the India Development Foundation and former Professor of Economics, JNU; (e) Shri J. M. Mauskar, retired Special Secretary to the Government of India and former Joint Secretary in Ministry of Petroleum & Natural Gas; (f) Shri Joeman Thomas, former Managing Director of ONGC Videsh Limited (a Company engaged in exploration and production activities in several overseas countries with investment running in several billions US $); (g) Dr K. P. Krishnan, Principal Secretary (Coordination) of the Government of Karnataka; as Convenor and (h) Shri Giridhar Aramane, Joint Secretary (Exploration) of the Ministry of Petroleum & Natural Gas as Secretary to the Committee.

    ISSUE / CONTENTION RIL RESPONSE Gold Plating of costs by RIL - as indicated by CAG, including the award of various contracts to Aker Allegations are baseless and misconceived. Under the PSC mechanism, the Contractor does not have an incentive to “gold plate” its capital expenditure as alleged or at all. Under the cost-recovery and production-sharing mechanism employed in the PSC the Contractor derives absolutely no benefit from spending more by way of contract costs than is necessary to carry out exploration and development operations. It is the Contractor who bears the risk, petroleum may not be produced in sufficient quantities for it to recover costs associated with exploration and development of the block, but the Government stands to receive a share of profit petroleum from the day that production commences. The presumption that the Aker group is related to RIL and that, through this group, RIL is siphoning off money and gold plating is completely baseless, false unfounded and a figment of the petitioners’ imagination. The petitioners identify no basis whatsoever for the alleged “presumption” beyond the fact that the Aker group won a number of contracts following the PSC tendering process. The holding company for the Aker group is Aker ASA, which is a Norwegian company listed on the Oslo Stock Exchange. There is absolutely no corporate relationship (direct or indirect) between RIL and any companies in the Aker group. RIL has no financial interest in or with Aker or its affiliated companies other than the contracts entered into with it for the purposes of the development of the KG-D6 Block. RIL has derived no benefit (directly or indirectly) from awarding the contracts in question to Aker. There is no “behind the scenes” arrangement whereby Aker has conferred any benefit or advantage on RIL for having awarded the contracts in question to Aker as alleged or at all.

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