1. KG gas penalty: Reliance Industries sends arbitration notice to govt

KG gas penalty: Reliance Industries sends arbitration notice to govt

Reliance Industries (RIL) and its foreign partners — the UK’s BP and Canada’s Niko Resources — have sent a ‘notice of arbitration’ to the government.

By: | New Delhi | Updated: November 12, 2016 6:51 AM
On November 3, after receiving the government’s demand for .55 billion, RIL had said that it proposes to invoke the dispute resolution mechanism in the production sharing agreement and issue a notice of arbitration to the government. On November 3, after receiving the government’s demand for .55 billion, RIL had said that it proposes to invoke the dispute resolution mechanism in the production sharing agreement and issue a notice of arbitration to the government.

Reliance Industries (RIL) and its foreign partners — the UK’s BP and Canada’s Niko Resources — have sent a ‘notice of arbitration’ to the government contesting the Centre’s demand of November 3 seeking to recover from them $1.552 billion in the aggregate, for exploiting natural gas that migrated to their KG-D6 block from state-run ONGC’s adjacent asset.

Sources confirmed to FE that the notice of more than 20 pages was sent to the petroleum ministry on Friday evening. All the three explorers — RIL, BP and Niko — are signatories in the notice.

On November 3, after receiving the government’s demand for $1.55 billion, RIL had said that it proposes to invoke the dispute resolution mechanism in the production sharing agreement 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 petroleum ministry, in a three-page letter sent to the firms on November 3 with details of how the amount has been computed, “directed” the explorers to pay the amount in the next 30 days, failing which “(the) ministry shall be constrained to take steps for recovering (the) unpaid government dues”.

In addition, RIL and its partners have also been asked to pay additional profit petroleum of $175 million corresponding to the production of the migrated gas.The letter sent by the government to Ajay Khandelwal of RIL, Sashi Mukundan of BP and Larry Fisher of Niko Resources said that the quantum of migrated gas from ONGC’s block sold by them is 338.332 million mBtu till March 31, 2016.

The worth of this migrated gas is the “unjust benefit” received by them. “…the amount of restitution receivable by government from you as on March 31, 2016 is $1.473 billion (gross). After deducting the royalty paid by you amounting to $71.714 million and adding interest of $149.863 million at LIBOR plus 2% calculated up to March 31, 2016, the government is entitled to receive an amount of $1.552 billion towards restitution of the unjust benefit,” read the letter.

The government’s move comes after a report by A P Shah, former chief justice of Delhi High court, presented to it on August 29, in which he agreed with the findings of US-based consultant DeGolyer and MacNaughton (D&M) on the issue of gas migration.

The consultant in a November 2015 report had highlighted that as much as 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to RIL consortium’s adjoining KG-D6 block in the Bay of Bengal between April 1, 2009 and March 31, 2015. The Shah panel had said that the question of quantification of unfair enrichment is to be decided by the government, with the principle that whatever benefit RIL consortium received in terms of the migrated gas is liable to be returned to the Centre.

The Shah panel had said that the question of quantification of unfair enrichment is to be decided by the government, with the principle that whatever benefit RIL consortium received in terms of the migrated gas is liable to be returned to the Centre. It however added that ONGC can’t make any tortuous claim against RIL and partners.

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