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RIL warns of KG-D6 shutdown, govt shows CAG's red card

BS Reporters/Mumbai/ New Delhi 18 Jul 12 | 12:07 AM
 Reliance Industries Ltd
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The war of words between Reliance Industries and the petroleum ministry over the future of India’s flagship gas acreage has escalated to a full blown face-off. Reliance and its partner BP on Tuesday dropped a bombshell, saying KG-D6, the country’s biggest gas discovery, might stop production in 2015 if the government did not approve its long-pending investment proposals and revised capital expenditure plans.

Not to be bogged down, Petroleum Minister Jaipal Reddy promised speedy clearance but said the Comptroller and Auditor General (CAG) had recommended withholding of sanction to the work programme if it was denied access to RIL and BP’s accounts. In its previous audits, the CAG had “adversely commented" on the issue, a statement said.

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“Therefore, (in the last meeting) the company representatives were requested to make all the records and accounts of the KG-D6 block available to the CAG as provided for in the Production Sharing Contract," the statement said.

The statement also confirmed the issues were discussed when RIL’s Executive Director

P M S Prasad and BP’s Region President and India Head Sashi Mukundan met the minister last Friday and asked for speedy clearances in four of the blocks (NEC 25, KG-D6 and two in the Cauvery basin) being operated by the two.

Gas output from KG-D6 has been under pressure for more than a year. Both RIL and BP have been blaming the delay in approval by the ministry for the sharp fall. Output this week has dropped to below 30 million standard cubic metres per day (mscmd) and is projected to further fall to 20 mscmd by next year. The gas output dip, from 61.5 mscmd achieved in March 2010, has pulled down power generation and industrial production in the country. RIL and BP told the government output would continue to fall if corrective measures were not taken. Usually, spending for a financial year is approved by the oil ministry-controlled oversight committee before the year begins. However, in case of KG-D6, budgets and work programmes for 2010-11, 2011-12 and 2012-13 have not been approved.

Besides budgets, the management committee (MC), headed by the Director General of Hydrocarbons and including a senior oil ministry official, has not approved the revised field development plan for the MA oilfield in the same Krishna Godavari basin KG-DWN-98/3 or the KG-D6 block in the Bay of Bengal. Also, the MC has refused to recognise at least three gas discoveries in the block, impeding preparation of a field development plan to bring them to production.

While the MC was supposed to meet at least once a quarter, RIL-BP’s request for a meeting of the panel has not been acknowledged on six-seven occasions.

RIL-BP told Reddy that well interventions at the currently producing Dhirubhai-1 & 3 fields and the MA oilfield could potentially add 0.8 trillion cubic feet of gas if a capital expenditure of $543 million for 2012-13 was approved. The two listed six interventions “critical to the maintenance of production at the current levels" they had planned in KG-D6 to arrest output decline. However, so far these have not been approved by the block management committee.

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