Seeks law ministry’s views on DGH’s suggestions
With several disputes between the government and hydrocarbon exploration companies impacting domestic production and investment scenario, the petroleum ministry is working towards putting in place a complete new approach to deal with disputes.
Upstream regulator Directorate General of Hydrocarbon (DGH) has come up with a concept note with the idea that “the role of government should be cut and the DGH (which is the technical arm) should decide whether to go for arbitration or not”. The proposals made by the DGH have been to the law ministry for a view, a senior official familiar with the development told FE.
Petroleum minister Dharmendra Pradhan wants to bring in an investor-friendly environment and prevent disputes over the production sharing contract between his ministry and explorers.
“There is a need to look into the arbitration process in the sector. Time, money and effort is wasted. We are looking to strategically fix it. There is so much else that can be achieved, so many areas to focus on, instead of being caught up in arbitration,” said another petroleum ministry official.
The new mechanism, if implemented, could offer a more conducive environment for explorers such as RIL and its foreign partners — UK’s BP and Canada’s Niko Resources — Cairn India and Videocon Industries, among others, who are currently engaged in arbitration with the government.
The DGH has proposed a two-pronged strategy, said the first official, adding that the cases, which may result in dispute, can be referred to a multi-disciplinary team (MDT) in DGH in the first instance to study all aspects of dispute with an open mind.
In case, the MDT has different views then the issues should be brought to a second level — executive committee (EC). The decision of EC will be final on any dispute arising in the block or field. “Only those disputes, which are not resolved following the two step process, will be sent to government for arbitration,” the official explained.
According to DGH, timely appointment of arbitrator is important. Non-appointment of arbitrator within 30-45 days of notice compels the other party to move court.
The latest example when RIL and its partners BP and Niko moved Supreme Court in December seeking appointment of umpire arbitrator for the notice of arbitration they have slapped in may 2014 for not revising gas prices for the once prolific KG-D6 block.
The upstream regulator has suggested to make ready a panel of arbitrators comprising domain experts or retired judges, which may curtail time spent in such process. A panel of law firms and senior advocates should be created, who could understand the government’s view.
Meanwhile, in case of production sharing contracts (PSC) for blocks offered prior to New Exploration Licensing Policy (NELP), the seat of arbitrations is outside India. According to DGH, when the awards against government are challenged in foreign courts, they uphold the findings of arbitrators. Therefore, when these PSCs come for extension, India should be made the seat of arbitrations.
For instance, the government is not ready to accept an award in an arbitration with a consortium that operates the Ravva offshore oil and gas fields in the east coast. Cairn India has a 22.5% operating stake in the field, ONGC holds 40%, while Videocon India and Singapore-based Ravva Oil have 25% and 12.5%, respectively.