Penalty on Reliance Industries to be calculated within a month, says Dharmendra Pradhan


After the A P Shah panel’s conclusion that Reliance Industries’ (RIL) production of migrated gas from the adjacent block of ONGC and retention of the ensuing benefits amount to ‘unjust enrichment’, the petroleum ministry has tasked its technical arm — the Directorate General of Hydrocarbons (DGH) — to compute the penalty to be levied on RIL. “DGH will be asked to calculate the amount. They will calculate the amount within one month. Then, they will serve the notice,” petroleum minister Dharmendra Pradhan said on Friday.

Pradhan told mediapersons thatthe government accepted the Shah commission’s recommendations entirely. “Yes, we will seek compensation. That needs to be quantified. Fact of the matter has been established. There has been migration. There are some protocols on how to look into the issue,” Pradhan reiterated. ONGC had brought up the issue that RIL has been pumping out gas from its KG-DWN-98/2 block in the Krishna Godavari basin. RIL owns the adjacent block, KG-DWN-98/3.

The Shah panel had said that ONGC had locus standi to bring a tortious claim against RIL. Shah, a former chief justice of the Delhi High court, in his report also said that the quantification of unjust enrichment can either be based on the monetary value of the migrated gas produced, and to be produced, by RIL or it can be the profits earned by RIL, after taking into account its costs and sales figures.

ONGC and DGH argued that the quantification of unfair enrichment has to be based on the monetary value of the migrated gas produced by RIL. Conversely, RIL argued that it is entitled to recover the development, drilling and facilities costs (capital expenditure) and operating costs (opex) for the migrated gas and to take into account its sales figures.

A November 2015 study done by US-based consultant DeGolyer and MacNaughton (D&M),highlighted that as much as 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to adjoining KG-D6 block of RIL in the Bay of Bengal between April 1, 2009 and March 31, 2015, which RIL commercially exploited. Unconfirmed reports peg the value of natural gas taken out by RIL at R11,000 crore.

The Shah panel said that the question of quantification of unfair enrichment is to be decided by the government, with the principle that whatever benefit RIL received in terms of the migrated gas is liable to be returned to the centre.

In July 2013, ONGC for the first time wrote to the DGH stating that there was evidence of lateral continuity of gas pools of the ONGC blocks with the KG-DWN-98/3 block, operated by RIL. The private explorer initially had denied ONGC’s claim of gas migration.
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Citing reasons for not arriving at a penalty figure, the Shah panel said that it faced significant limitations in giving a figure to the final value of the migrated gas produced by RIL during the term of its lease, due to the lack of data and the committee’s inherent technical limitations.

Contentious issue

ONGC’s 7.009 bcm from Godavari PML & 4.116 bcm from 98/2 migrated to RIL’s KG D6.

Of this, RIL drilled out 5.968 bcm from Godavari and 3.015 bcm from 98/2.

ONGC and DGH argued that RIL should pay for monetary value of the migrated gas produced.

RIL argued that it is entitled  to recover the development  and operating costs for the migrated gas.