RIL, which has invested substantially in the KG-D6 basin might have to relinquish 25 to 50% of the area, in accordance to the Production Sharing Contract (PSC). Â If this happens to be the case, Reliance might ask for a refund on its investment in the oil rich basin.
Hidden within the intricacies of the issue is something with a definitely fishy smell. Apparently, the PSC provided for Reliance to relinquish ownership of 25% of the area in 2004, and a similar extent of area in 2006.
Reliance however argues that the PSC gives Reliance the right to retain any area that it thinks contains oil. In 2004, Reliance decided that the entire piece of land should be treated as discovery area. It had made 11 discovery of oil and had determined that oil was to be found almost wherever one decided to put down a well.
The extraordinary claim was examined by the Directorate General of Hydrocarbons (DGH), and then by a committee headed by then Additional Secretary in the Oil Ministry S Sundareshan. Both of them agreed with Reliance claim. At that time Murli Deora, a close friend of the Ambanis, who had even arbitrated in the dispute between the two brothers headed the petroleum ministry. The DGH is the technical arm of the oil ministry.
The CAG in its report released in June 2011 had slammed the oil ministry for favoring Â oil firms like RIL, ONGC and Cairn India. The CBI which was investigating the matter said that the government may have lost â€˜hugeâ€™ amounts of money because of the lopsided deals.
In its report, the CAG had slammed the Oil ministry for allowing Reliance to stake ownership claims over the entire area. With Deora out of the Oil Ministry, the government is doing something of a course correction. The government will want Reliance to relinquish between 25% to 50% of the land as per the contract.
Reliance says it has invested heavily in exploration in these areas and has established deposits of 40 trillion cubic feet. So far only 2 of the 18 discoveries have been put into production, and the Oil Ministry now under Jaipal Reddy is considering penalizing Reliance for under production.
As far as refunds are concerned, there is the additional matter of the CAG thinking that Reliance had overstated its actual expenditure by a whopping 117%.