Gas Dispute, Cairn's Revenge, the Production Sharing Contract: Updates

Lots of things happening in the petroleum arena. I call the petroleum sector an arena because its the most happening sector as far as disputes are concerned!

Gas Allocation Issue:

The Bombay High Court has reserved its judgement on the issue of non-allocation of gas from the Reliance D- 6 Field to the steel industry. We have been following this issue for some time (previous posts from this label). Moneycontrol.com has reported that the Ministry of Petroleum and Natural Gas has filed a reply to the petition of Maxsteel Welspun and others. Key aspects of the response, as per the report are the following:

•  Gas allocation to the fertilizer sector should be prioritized due to the Kharif Season.
• The power sector needs priority because of the extreme summer conditions.
• This action by the Government would lead to savings in subsidy to the tune of Rs. 1251 crores to the government

Against this, it was contended that the Government has completely overhauled the extant policy on natural gas. Further, it was argued that if there was a reduction in gas production, there should be pro-rata cuts by the Government in respect of all sectors.

The steel companies counsel forwarding the point that if there is a reduction in the production of gas from the KG-D6 basin then the oil ministry should form this particular policy of pro-rata cuts for all sectors across the board in the range of 10-15%.

Cairn's Revenge?:

Cairn is now acting like a woman scorned. Readers must be aware of the Cairn-Vedanta deal and how the Government-ONGC combine is still holding both Cairn and Vedanta by their respective kudumis! Now, Cairn India has alleged that ONGC has overstated its gas reserves in the KG-DWN Block 98/2 Block. Cairn India is in fact a part of the ONGC-Cairn consortium that has been given the licence to explore the Block. This allegation makes the Cairn-Vedanta-MoPNG saga more interesting, especially when ONGC is coming up with an FPO. Meanwhile check out a few news reports on the issue- Times of India, Business Standard

PSC:

More trouble in the petroleum exploration business. The Comptroller and Auditor General's office has come up with a 193 page Draft Report on Hydrocarbon Production Sharing Contracts alleging that it has structural flaws, the major one being that the PSC encourages more capital expenditure by the Contractor thereby reducing the government's share of the profits from the petroleum produced. Check out this news report. This blawgger couldn't get hold of the report but if anyone has a copy of it, please mail it to lawbadri@gmail.com so that we could do a series of posts on the report.