Documents aimed to assist you in navigating the various claims and counter claims on KG D6 in the context of India’s energy security

1.
IN THE COURT OF PEOPLE
ISSUE / CONTENTION RIL RESPONSE
Deliberate reduction in gas production and
hoarding of natural gas
Not even an iota of substance in the allegation. This allegation betrays
complete disregard of the technical realities of the process of
production of natural gas from reservoirs.
Hoarding is technically impossible. The AIDP (Addendum to the Initial
Development Plan) was based on seismic data that suggested
connectivity between the small deposits outside the main channel, in
which case it would help drain the channel by adding wells in these
areas. Experience has shown that these studies – which are based not
on actual drilling but by use of other equipment – did not give the
correct picture due to the nature of the sands, and that in fact there is
no connectivity between these deposits and the main channel.
There is a dispute between the Contractor and the Union of India on
the issue of whether drilling more wells would produce more, and will
be resolved in the arbitration proceedings after factual and expert
evidence.
It is a known and an accepted fact that early estimates of production
from gas fields are often unpredictable and may prove to be incorrect.
Estimates given as to production and reserves are necessarily subject
to significant variation.
Besides, the only means by which the Contractor can recover its
contract costs is by producing and selling gas from the KG-D6 Block.
In particular, the Contractor does not recover the time value of money
associated with its investment of risk capital (eg, cost of capital) and
delaying recovery of contract costs by hoarding gas would increase
such costs (which are borne by the Contractor).
Complaints about hike in price of natural
gas
Requirement that gas be sold at market price reflects the central
objectives of the NELP. The NELP PSC mandates that gas be sold at
the market price.

2.
ISSUE / CONTENTION RIL RESPONSE
The revision of price based on the formula proposed by the
Rangarajan Committee, will benefit PSUs such as ONGC and OIL.
The Contractor produces only some 15% of the total quantity of
domestically produced gas to which the pricing formula or basis
applies. The Petitioners ignore the fact that 70% of domestically
produced gas comes from PSUs such as ONGC and OIL. The main
beneficiaries of an increase in the price of domestically produced gas
will be the PSUs and the Government itself (through royalties, taxes
and an increased share of profit petroleum).
Failure to effect cost recovery disallowance
and credit BP's consideration for
assignment of 30% Participating Interest
Allegation is misconceived for the following reasons:
• Consideration that was paid by RIL was for a package of 23
blocks (being 30% share of rights and obligations under the
relevant production sharing contracts) of which 21 was approved
by GOI.
• Having assigned 30% participating interest in the 21 blocks, RIL
gave up all future interest in any share of profit petroleum and
right to recover contract costs in respect of that 30% participating
interest.
• RIL have not by any stretch of imagination recovered its contract
costs by selling 30 % participating interests in the KG D6 Block to
BP.
• Assignment of interest/ farming out is a common practice in the oil
and gas industry.
Failure to take action on CAG report The issues brought about through the CAG are now pending with the
PAC (Public Accounts Committee) and the Contractor has fully
complied with all the requirements of the audit process.
Contractor’s failure to relinquish acreage Contractor did not retain any discovery area in contravention of the
PSC.
The Contractor was entitled to the entire contract area as a discovery
area because the available information and technical analysis and

3.
ISSUE / CONTENTION RIL RESPONSE
interpretation of that data appeared to demonstrate presence of a
multiple-channel Turbiditic reservoir system existing almost
throughout the Contract Area.
The CAG appears not to have appreciated the relinquishment
provisions in the PSC.
RIL has in fact relinquished some 70% of the Contract Area and the
Government has issued an order to relinquish about 81% of the
contract area. RIL has retained only those areas in respect of which it
holds a mining lease or is to file a development plan.
Natural Gas should be sold at rupee terms
and not at US dollars
The entire PSC accounting is in US Dollars and the price of the gas
has necessarily to be fixed in dollar terms. Oil is also priced in US
Dollars under the PSC.
Composition of Rangarajan Committee -
lack of technical experts
Composition of the Rangarajan Committee was as follows: (a) Dr C.
Rangarajan, Chairman of the Economic Advisory Council to the Prime
Minister; (b) Justice Shri Jagannadha Rao, former Judge of the
Supreme Court; (c) Shri B. K. Chaturvedi, Member (Energy) of the
Planning Commission (and former Cabinet Secretary and Petroleum
Secretary in Government of India); (d) Prof Ramprasad Sengupta,
Distinguished Fellow of the India Development Foundation and former
Professor of Economics, JNU; (e) Shri J. M. Mauskar, retired Special
Secretary to the Government of India and former Joint Secretary in
Ministry of Petroleum & Natural Gas; (f) Shri Joeman Thomas, former
Managing Director of ONGC Videsh Limited (a Company engaged in
exploration and production activities in several overseas countries
with investment running in several billions US $); (g) Dr K. P.
Krishnan, Principal Secretary (Coordination) of the Government of
Karnataka; as Convenor and (h) Shri Giridhar Aramane, Joint
Secretary (Exploration) of the Ministry of Petroleum & Natural Gas as
Secretary to the Committee.

4.
ISSUE / CONTENTION RIL RESPONSE
Gold Plating of costs by RIL - as indicated
by CAG, including the award of various
contracts to Aker
Allegations are baseless and misconceived. Under the PSC
mechanism, the Contractor does not have an incentive to “gold plate”
its capital expenditure as alleged or at all. Under the cost-recovery
and production-sharing mechanism employed in the PSC the
Contractor derives absolutely no benefit from spending more by way
of contract costs than is necessary to carry out exploration and
development operations.
It is the Contractor who bears the risk, petroleum may not be
produced in sufficient quantities for it to recover costs associated with
exploration and development of the block, but the Government stands
to receive a share of profit petroleum from the day that production
commences.
The presumption that the Aker group is related to RIL and that,
through this group, RIL is siphoning off money and gold plating is
completely baseless, false unfounded and a figment of the petitioners’
imagination. The petitioners identify no basis whatsoever for the
alleged “presumption” beyond the fact that the Aker group won a
number of contracts following the PSC tendering process.
The holding company for the Aker group is Aker ASA, which is a
Norwegian company listed on the Oslo Stock Exchange. There is
absolutely no corporate relationship (direct or indirect) between RIL
and any companies in the Aker group. RIL has no financial interest in
or with Aker or its affiliated companies other than the contracts
entered into with it for the purposes of the development of the KG-D6
Block. RIL has derived no benefit (directly or indirectly) from awarding
the contracts in question to Aker. There is no “behind the scenes”
arrangement whereby Aker has conferred any benefit or advantage on
RIL for having awarded the contracts in question to Aker as alleged or
at all.