New Delhi: The Oil Ministry has informed the Prime Minister's Office (PMO) that a consortium-led by BG Group had caused a production loss of USD 5.6 billion in western offshore Panna/Mukta and Tapti oil and gas fields by not completing committed work programme.
In a status report on the arbitrations relating to the PMT field, Oil Ministry on December 2 wrote to PMO that it is trying in all possible ways to protect government's interest by strengthening the legal team, hiring of expert witnesses and moving to Supreme Court for filing curative petition. Sources said the ministry told PMO that BG and its partners Reliance Industries and ONGC, had initiated arbitration on the issue related to cost recovery limit prescribed in the Production Sharing Contract (PSC), calculation of royalty on gas production and government audit issues.
The ministry said the total profit petroleum earned by the contractors from the PMT fields was USD 11.05 billion. Of this, BG Group and Reliance Industries, which hold 30 per cent stake each, got USD 3.32 billion. State-owned Oil and Natural Gas Corporation (ONGC), which holds the remaining 40 per cent interest, got USD 4.42 billion. The government's share was USD 1.3 billion. Besides, the government also earned USD 590 million as royalty and USD 472 million as cess from these fields. The Ministry accused the three partners of not completing the committed work programme, which has resulted in a production loss for the government.
The loss is estimated at USD 3.7 billion in Panna-Mukta and USD 1.9 billion in the Tapti production-sharing contract. Sources said the ministry told PMO that the contractors have also used the Clause related to notional income tax in the PSC in a manner so as to benefit themselves "unjustly". They are using notional tax rate of 50 per cent for calculation of profit petroleum from the block while using the applicable tax rate in paying the income tax to the government, they said.
In 2010, RIL and British Gas had invoked arbitration for PMT, primarily on the production-sharing contractor provision capping the development cost to the cost recovery limit. Besides, there are issues relating to royalty, cess, service tax and the scope of audit by the Comptroller and Auditor General of India.
The PMT arbitration is separate from the ones RIL has initiated over relinquishment of four blocks and gas disputein KG-D6 block. The company is disputing the amount it has to pay as liquidated damages for four relinquished blocks - KG-OSN-97/3, KG-OSN-97/4, MB-OSN-97/1 and GK-OSN-97/1.
Arbitrations relating to the PMT fields and the relinquished blocks are due for hearing in April next year. In the arbitration cases relating to KG-D6, RIL and its partners BP plc and Niko Resources of Canada have disputed disallowing of cost. Also, a separate arbitration has been filed over delay in announcing a gas price hike, they said.
