The Ministry of Petroleum and Natural Gas has demanded a $1.55 billion (Rs 10,000 crore) compensation from operators of the Krishna Godavari-D6 block, for 'migration of natural gas from its neighboring blocks'.
The claim made in a letter by the petroleum ministry to contractors of the gas block RIL, BP and Niko was based on a recommendation made earlier by a government appointed Shah committee.
Reacting to the claim, chief operator of the gas block RIL said in a statement on Friday, "The claim of the government is based on misreading and misinterpretation of key elements of the PSC and is without precedent in the oil & gas industry, anywhere in the world."
RIL has challenged the imposition of government's fine and had said that it would take the matter to arbitration.
The detailed statement said that with the bindings of the Production Sharing Contract in place seven years back, gas extraction estimates are not in place and no where globally operations are conducted with such bindings.
Calling the government order 'arbitrary', the contractor of KG-D6 has sought arbitration route to resolve the issue.
"RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the government. RIL remains convinced of being able to fully justify and vindicate its position that the Government’s claim is not sustainable," the statement said.
Close to 338 million British thermal units of gas have been extracted by the contractors during their seven year operation tenure till date. RIL has paid royalty about $ 72 million for the produced gas already, which was deducted and an interest of about 5.75 per cent of the total demand of $1.55 billion was made by the government.