RIL launch actions against Gov over recovery cost of KG Basin gas field.

Mukesh AmbaniNew Delhi: Mukesh Ambani-run Reliance Industries Ltd (RIL) has launched negotiation proceedings against the government over the recovery of cost for the development of the offshore KG Basin gas field.

The cost estimations had run into a controversy following the Comptroller and Auditor General of India’s (CAG) report indicates irregularities on the part of the company.

In a statement issued on Monday, Reliance said that, “To finally resolve this cost recovery issue so as not to hinder future investments in this block, the company has begun arbitration proceedings against the government of India (GoI) to have the company’s entitlement to recover its costs, and the validity of the stance adopted by the petroleum ministry finally determined by an independent tribunal.”

Sources said that the ministry is manipulative how much of the $ 5.7 billion expenditure RIL has incurred on building facilities, that can handle up to 80 mmcmd of gas output, can be disallowed. The firm is already reported to have recovered mainly of the amount and the government would want it to repay some of this. However, RIL has moved for arbitration.

RIL said that it was concerned over press reports to the result that the ministry of petroleum and natural gas will aspire to restrict the amount of the cost recovered by the company from the revenue generated from the sale of gas produced from the D1 and D3 fields in the KG-D6 blocks.

It further said that Reliance, and its partners are allowed under the production sharing contract (PSC) with the government to recover their full costs from the revenue generated by production from the block. The investment made in KG-D6 production facilities has been only partially recovered and the return on the investment thus far is less than the cost of the capital, RIL claimed.

The cost estimates of RIL had run into a controversy with CAG suggests an in-depth review by the government into as many as eight of RIL claims it is entitled to recover full costs the 10 major contracts valued at $ 2.44 billion. Most of these contracts were given to the Aker group of Norway.

The report cites documents of the Jurong Shipyard in Singapore to show that the FPSO had cost the Aker group only about $ 71.5 million. RIL has taken the FPSO on a bare boat charter of $ 107.5 million a year for a period of 10 years, which works out to $ 1.1 billion.

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