RIL has challenged the oil ministry's order passed last year, to charge the company with a $1.005 billion penalty for failing to meet production targets during 2010-11 and 2011-12. The ministry claims that as the KG-D6 production has seen a sharp fall, the company is not entitled to full amount it has claimed as cost recovery. According to the production-sharing contract (PSC), RIL and its partners BP and Niko Resources, are permitted to deduct costs (capital and operating) from sale of gas before sharing profits with the government.
RIL produced an average of 26.07 million cubic metre per day of gas against the target of 86.73 mmcmd in 2012-13. RIL has set up infrastructure to produce 80 mmscmd of gas, but current production level has dipped to around 14 mmscmd. The upstream oil and gas regulator, directorate general of hydrocarbons (DGH), has recently recommended to the oil ministry that Reliance Industries cough up an additional penalty of $792 million for not fulfilling its natural gas production targets from its eastern offshore KG-D6 fields in 2012-13. If the oil ministry approves this amount then RIL's overall penalty would go up to $1.8 bn.
RIL and Niko (NECO) have requested the Chief Justice of India to appoint the umpire arbitrator as the two arbitrators former chief justices SP Barucha, (nominated by RIL in November 2011) and VN Khare (nominated by the oil ministry in June 2012) have failed to agree on the third and presiding arbitrator.
Considering that the consortium partners are foreign firms that are directly affected, it would be appropriate if a third arbitrator is appointed from a country other than India, UK or Canada. There is no paucity of names of eminent arbitrators from other jurisdictions from countries such as the US, Singapore and Australia, RIL said in its petition.