India Asks Reliance, BP to Provide East Coast Block Accounts

NEW DELHI - India's oil ministry Tuesday said it has asked Reliance Industries Ltd. and its partner BP PLC to provide all the accounts of investment at their east coast gas block to the federal auditor after the explorers sought the ministry's speedy clearances for further investments in four blocks, including D6 in the Krishna Godavari basin, off the east coast.

Reliance, India's largest private refiner, and BP are struggling with a declining output at the D6 block, which has crippled India's gas-based power plants and hurt the flow of investments into the sector.

"The statement highlights tough stand of the government on KG D6," Jagannadham Thunuguntla, head of research at SMC Global Securities, said. "It seems raising production from D6 isn't going to be easy and will be a long drawn process."

Reliance couldn't be reached for a comment.

The oil ministry's approach also highlights the government's caution in its decision taking as the anti-corruption authorities recently have taken bureaucrats, politicians and executives at companies to task over a host of high-profile issues.

India's oil ministry and Reliance are already fighting a battle over D6 capital expenditure. Last year Reliance approached India's apex court for the appointment of an arbitrator as the ministry wants Reliance to forego $1 billion in cost recovery after the production from D6 failed to meet the target.

The company has claimed expenditure of $9.47 billion and recovered $5.26 billion from the fiscal year that began April 2006 up to March 2011 for developing the block, the oil ministry said in March.

The production from D6 stood at 42 million standard cubic meters a day in the fiscal year ended March 31, well below its original target of 70 mmscm/d.

Output from the D6 block will plunge to 20 mmscm/d by March 2015, from 28 mmscm/d this year, Oil Minister Jaipal Reddy told lawmakers in the upper house of parliament in May.

"The Comptroller and Auditor General recommended withholding of sanction to work plans and budgets if access to records is denied to CAG," the ministry statement said Tuesday.

The Press Trust of India earlier Tuesday reported that Reliance had denied CAG access to its financial records, forcing the oil ministry to hold back investment approvals.

Reliance and BP have warned that KG-D6 will stop producing in 2015 unless the government approves investments needed to keep the nation's largest gas field alive, the PTI report said.

The oil ministry statement came after top executives from Reliance and BP met Mr. Reddy Friday. The Indian company holds a 60% stake in the KG D6 block, while BP owns 30% and Canada's Niko Resources Ltd. the rest.

Reliance has maintained it was entitled to recover all costs under the contract and there are no provisions that entitle the government to disallow cost-recovery.

Copyright (c) 2012 Dow Jones & Company, Inc.

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