In what could be another major blow for Reliance Industries (RIL), oil ministry has directed the company's customers GAIL India and Chennai Petroleum Corp (CPCL) to deposit their next payment for purchase of crude oil and natural gas from the KG D6 basin to the government accounts instead of remitting it to the company in an attempt to recover the government's profit share due from the Mumbai-based company.

"GAIL and CPCL have been directed to remit the sale proceed of crude oil/condensate/natural gas from KG-D6 block which falls due immediately in to the government account so as to recover an amount of $115,263,612 at the rate of 50% by each company and deposit the same with government," oil minister Dharmendra Pradhan told the Lok Sabha, in a written reply.

RIL and the government has been at loggerheads over the past three to four years over substantial lower production of natural from the KG-D6 basin as promised by the company in the production sharing contract. RIL has been denied a cumulative cost of $2.376 billion up to March 31, 2014, in the form of a penalty for falling short in gas production. The creation of excess or unutilised infrastructure impacts the government's profit share known as profit petroleum and this is sought to be corrected by disallowing part of the expenses incurred by the company.

Pradhan explained that ministry of petroleum and natural gas (MoP&NG) has raised its claims for profit petroleum to $115 million following disallowance of cumulative contract costs of $1.8 billion till 2012-13. In total, the government owes $195 million as profit petroleum cumulative up to 2013-14. Profit petroleum is basically government's share which is calculated after deducting the costs incurred by the company in the development and production of the hydrocarbon. Thus, the changes in costs would have a direct bearing on profit petroleum.

Pradhan said gas output from the Dhirubhai-1 and 3 gas field in the eastern offshore KG-D6 block was agreed at 80 million standard cubic meters per day but actual production fell to 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14. This year the output has been only 8.05 mmscmd so far. His ministry on July 10 issued a notice disallowing $579 million in cost for output lagging targets in 2013-14.

The government had previously issued a notice to RIL disallowing a total of $1.797 billion in costs for falling short of production during 2010-11 ($457 million), 2011-12 ($548 million) and 2012-13 ($792 million). Thus, the government has so far disallowed a cumulative cost of $2.376 billion, up to March 31, 2014, to RIL and its partners Niko Resources and British Petroleum.

Most analysts this corespondent spoke to were surprised by the government's move to stop payments to RIL. "I am surprised, how the government can give such a direction as the matter is still under arbitration. I don't think the government may actually go ahead and implement it, as that would not be a right move," a senior analyst from leading domestic brokerage said on condition of anonymity.

An e-mail query sent to RIL did not elicit any response.

The oil ministry is unlikely to allow higher gas price to RIL, unless it meets the shortfall in gas output over the last four years, a recent document by the ministry had revealed. The deferment of gas price hike until September has further compounded the woes of the country's largest private sector oil and gas explorer.