Lok Sabha Question No. 220 (STARRED), answered on 2017-07-31
Subject: Violation of Contract Agreement in KG Basin
Ministry: PETROLEUM AND NATURAL GAS
Asked by: RAMA DEVI, LAXMI NARAYAN YADAV

## LOK SABHA STARRED QUESTION NO. *220

## TO BE ANSWERED ON 31 st  JULY, 2017

## VIOLATION OF CONTRACT AGREEMENT IN KG BASIN

*220:  SHRIMATI RAMA DEVI: SHRI LAXMI NARAYAN YADAV:

पेट्रोलियम और प्राक ृ लिक गैस मंत्री

## Will the Minister of PETROLEUM & NATURAL GAS be pleased to state:

- (a)    whether  cases  of  violation  of  the  contract/agreement  signed  for  oil  and  gas  production  in Krishna Godavari (KG) Basin have been reported/come to the notice of the Government recently;
- (b) if so, the details thereof along with the number of such cases reported during the last three years and the current year;
- (c) the details of the action taken by the Government in this regard along with the rules under which the said action has been taken; and
- (d) the outcome of the said action taken by the Government?

## ANSWER

पेट्रोलियम और प्राक ृ लिक गैस मंत्रािय में राज्य मंत्री ( प्राार रन्त्िवत्र ( ) प्रााप्र ामेवध ीी )

MINISTER OF STATE (INDEPENDENT CHARGE) IN THE MINISTRY OF PETROLEUM & NATURAL GAS (SHRI DHARMENDRA PRADHAN)

- (a) to (d) A statement is laid on the table of the house.

## STATEMENT  REFERRED  TO  IN  REPLY  OF  PARTS  (a)  TO  (d)  OF  LOK  SABHA STARRED  QUESTION  NO.  220  TO  BE  ANSWERED  ON  31.07.2017  REGARDING VIOLATION OF CONTRACT AGREEMENT IN KG BASIN

(a) to (d): There are 10 blocks under Production Sharing Contracts (PSC) in KG Basin. As per the provisions in Article 25 of PSC, statutory financial audit is conducted on annual basis through qualified  practicing  chartered  accountants.  Copy  of  the  audited  accounts  is  submitted  to  the Government  within  30  days  after  approval  of  Management  Committee.    In  addition,  as  per Section 1.9 of Accounting Procedure (AP) of Production Sharing Contract (PSC), audit of PSC is being conducted by Government appointed auditor to ascertain the compliance of PSC provisions by the Operator.

Under  Section  1.9.4  of  AP,  audit  exceptions  are  notified  to  the  Contractor  who  is  required  to comply  within  120  days.  Some  of  the    exceptions  include  non  submission/late  submission  of reply, non submission of budget against actual expenditure, procurement  procedures in violation of PSC, non recoverable cost, misallocation of expenses, delay in adhering given timelines, non submission of statement on time, non appointment/delay in appointment of auditor etc. Compliance report/replies to audit exceptions received from the operator are examined on merit. Unsettled audit exceptions are again communicated to Operator for compliance. This is ongoing process.  Based  on  the  financial  implication  of  the  audit  exception  and  not-compliance  by contractor, Government issues notices for recovery and disallowance of non-recoverable cost. In one of the blocks, violation of the contract / agreement signed by the Government has been brought out in C&AG Audit Report No 11 of 2016 presented in the Parliament in August, 2016. Inter-alia some of Audit observations/findings and Action taken by Government are as under:

- i) Underutilization  of  gas  handling  facilities  due  to  non-achievement  of  production  as envisaged in  the  approved  Development  Plan.  Government  disallowed  cost  recovery  of US  $  2.756  billion.  The  contractor  invoked  arbitration  which  is  still  pending  for adjudication.
2. ii) Payment of US$ 10.13 Million Uptime Bonus for chartering Floating Production Storage and  Offloading  (FPSO).  Government  has  directed  the  operator  to  pay  the  US  $  2.35 million toward loss of profit petroleum to the Government.
3. iii) Relinquishment of excess area held by Contractor. The Government issued an order dated 30.10.2013 directing the operator to relinquish the excess contract area in compliance with Article 3.11 of PSC. The Contractor has relinquished the excess area.

In accordance with the provisions of Article 10.15, Article 11.2 and Article 12, contractor is under contractual obligation to apply to Directorate General of Hydrocarbon  (DGH)  for unit development in case commercial discovery extends beyond the development area. For drawl of gas  by  the  contractor  from  contiguous  block  in  violation  of  contractual  obligation  under  PSC, Government issued Notice dated 03.11.2016 to the contractors of block KG-DWN-98/3 claiming provisionally  an  amount  of  US  $  1.552  billion  along  with  interest  upto  31.03.2016  towards restitution  and  an  amount  of  US  $  174.9  million  towards  additional  profit  petroleum.  The contractor has invoked arbitration, which is pending adjudication.

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