After the government told the Mukesh Ambani-promoted Reliance Industries (RIL) that there was ‘no-cause’

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for arbitration, the petroleum ministry is set to slap a notice on the private explorer disallowing $1.235 billion that it has purportedly spent on exploring KG D6 basin.

The government will restrict the recovery of costs incurred by Reliance Industries for excess capacity created in KG-DWN-98/3, popularly known as KG D6. The ministry will send the notice over the next two weeks, said a senior oil ministry official, who did not wish to be named.

The nodal ministry said RIL has failed to take steps to arrest the decline in output, neither has it made any effort to achieve the target in gas production from KG D6 basin. RIL has been interested only in recovering cost, it said.

Reliance Industries has made expenditure for creating gas production, transportation and processing facilities for a peak output of 80 mmscmd. But the firm could not adhere to the development plan submitted by itself, neither could it provide reasonable judgment on the cause for the falling output, the ministry noted.

This is why the petroleum ministry has decided to go by sub-clause IX of clause 3.2 of the production-sharing contract (PSC) that indicated that expenses made with respect to non-fulfillment of contractual obligations should not be recoverable or allowable for cost recovery and profit sharing.

According to suggestions made by the petroleum ministry’s technical wing, Directorate General of Hydrocarbons (DGH), the government would disallow $457 million spent in 2010-11 and another $778 million expenses incurred by Reliance Industries and its partners in 2011-12.

Reliance Industries spent $5.693 billion in the development of D1 and D3 fields in the D6 block of Krishna Godavari basin. Out of these expenses, nearly $4.574 billion has been incurred on erecting production facilities. On the other hand, the explorer has recovered about $5.258 billion till March 31, 2011. At the same time, annual accounts of the project starting 2008-09 till 2010-11 are yet to be approved by the management committee of the block.