Get ready for another PMT battle with ministry

Vol 14, PW 15 (27 Jan 11) Exploration & Production

Are we about to witness the start of another protracted battle between the oil ministry and the Panna, Mukta and Tapti consortium of British Gas, Reliance and ONGC In a remarkable development, PETROWATCH learns the oil ministry has directed GAIL and IndianOil to recover a staggering $80m from the PMT consortium.

This, alleges the government, is outstanding payment of ‘profit petroleum’ in 2005 from the Panna and Mukta fields. On December 29, we hear, GAIL wrote to PMT consortium members saying it would deduct $25m from the money it owes for present and future gas purchases.

On the same day, IndianOil wrote a similar letter, saying it would deduct $55m for present and future crude oil purchases. Is this legal For GAIL, most certainly not, but for IndianOil, possibly, argue analysts.

For GAIL, they say the move is fraught with legal risk. “GAIL will become a defaulter if it pays less to the consortium than what it owes for the gas,” we hear.

“There is no contract provision for this kind of arbitrary deduction. If GAIL pays less than it should then the PMT consortium will be well within its rights to begin legal proceedings to recover its money.

” Before it implements such an ‘ill-advised’ oil ministry order, we hear, “GAIL should remember it is not a government nominee for PMT gas but is bound by contract to pay for what it takes.” By contrast, IndianOil is under no such constraint, as it has no contract for the crude it buys.

“IndianOil is the government nominee for PMT oil,” adds a source. “If the ministry is determined to get this money it should do it through IOC,” suggests a source.

“No legal proceedings can be taken out against IOC for ‘short’ payments because it has no contract for PMT oil.”