Given that both the CAG and the Ashok Chawla Committee report pointed out that the current structure of the production sharing contracts encouraged all companies to either pad costs or to advance their capital expenditure planshigher capital expenditure lowers the investment multiple and hence government share of profitsthe oil ministry referred the matter to the law ministry. Since the governments profit share had fallen due to the higher capex but the gas production hadnt risen, Nariman recommended the government ask RIL to reverse part of the recoveries it had already madeRIL has invested $5.7bn till now and recovered around $5.3bn of this. In the event the company did not agree, he suggested the government go in for arbitration.
The arbitration now offers the chance to set to rest many of the controversies that have arisen, not just on whether the costs were excessive but on whether the government nominees on the management committee that clears costs of exploration and drilling were sleeping on the jobhad they been keeping an eye on the reservoir data, for instance, they may have been able to take a call on whether additional capex should have been allowed. At the end of the exercise, the government can also take a call on whether the current investment multiple-based system of revenue sharing should be junked in favour of a simpler method.