“To finally resolve this cost recovery issue so as not to hinder future investments in this block, the company has begun arbitration proceedings against GoI (government of India) to have the company's entitlement to recover its costs, and the validity of the stance adopted by MoPNG (ministry of petroleum and natural gas), finally determined by an independent tribunal," said RIL in its filing to the Bombay Stock Exchange on November 28, 2011.
The cost restriction decision of government came on the grounds that production levels have been lower than originally anticipated and that the field facilities have not been fully utilized. However, RIL stated that the company and its partners have been entitled under the Production Sharing Contract (PSC) to recover their full costs out of the revenues generated by production from the block.
Gas production at D6, India's largest gas reservoir located off the eastern coast of India, has been falling over the months.
For the first half of fiscal 2012, gas output averaged 46.6 mscmd, according to an RIL investor presentation, which was almost half of what was expected to be delivered.
Also following the falling gas output, RIL had also partnered with US based BP Plc, to boost the natural gas output with the latter's expertise. BP has already completed its $7.2-billion deal with RIL to acquire 30 per cent stake in Reliance's 21 oil and gas blocks.
RIL, India's most valuable company, said it will seek a hearing in the matter at the earliest and expects that the government “will seek to do likewise in the interests of the energy sector in India and the investments therein".
The D6 block is also at the centre of a controversy after CAG said in a report that RIL had breached some terms of its contract with the government.
Dion Global Solutions Ltd