The ministry of petroleum and natural gas plans to put in place a policy for calculating such penalties, which may increase or decrease the amounts already paid by the two.
NEW DELHI: Penalties paid by Reliance Industries Ltd (RIL) and Oil and Natural Gas Corporation (ONGC) for not meeting the drilling requirements under contracts signed for domestic oil and gas exploration blocks will now be reviewed. The ministry of petroleum and natural gas plans to put in place a policy for calculating such penalties, which may increase or decrease the amounts already paid by the two.
“The penalties paid recently will be recalculated on the basis of principles laid down by the ministry,” said a senior official. The empowered committee of secretaries (ECS) that approves production sharing contracts (PSC) for blocks under the New Exploration and Licensing Policy (NELP) will also be approving guidelines for calculating sums due to the government for unfinished minimum work programme (MWP).
Sources said the need for transparent guidelines was felt since large sums have become due or will be due in future to the government as the number of PSCs has increased. The government has signed 190 PSCs during the pre-NELP and NELP rounds.
The exercise has been undertaken following objections of the internal finance division of the ministry of petroleum and natural gas on calculations made by the directorate general of hydrocarbons.
“The finance wing felt that amounts for the unfinished MWP in some cases have been substantially modified after discussions between DGH and contracts,” said an official.
MWP is the drilling schedule that an operator pledges at the time of bidding. It is an important clinching factor for winning contracts.
DGH notified $96 million penalty in case of RIL initially for four exploration blocks. The penalty was reduced to $26.5 million after discussions between the two and was further reduced to $19.8 million.
DGH had calculated such penalty in the case of ONGC as $97 million for six blocks. After discussions with ONGC, it was revised to $107 million but with ONGC seeking review under the methodology adopted for RIL, the amount came down to $24.5 million.
The finance division pointed out that PSC and extension policy for carrying MWP are audited by the comptroller and auditor general since they are government revenues. Sources said such variation was due to DGH taking the dry well cost principle instead of the earlier meterage basis. Besides, the cost of rig was taken as that prevalent at the time of PSC signing and not the current rates.
The existing PSC merely mentions that the penalty amount be equal to the amount required to complete MWP. “For determination of this amount, available relevant information including budget and modern oil field and petroleum industry practices may be taken into account,” says the standard clause in the PSC.
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