The government on Monday said the larger award of $3.85 billion plus interest by the arbitral tribunal regarding the production sharing contract for Panna-Mukta and Tapti fields was in its favour and that this was being pursued through the execution petition filed before the Delhi High Court. It also said it retained the right to seek leave of the English Commercial Court’s June 9 order that went in favour of Reliance Industries and Shell in a cost recovery dispute in connection with the offshore oil and gas fields.
The latest order, which the government lost, came on a plea by it challenging a $111-million arbitration award in favour of the two firms. “It is pertinent to mention that, even in the latest award and order, the contractor’s claim amounting to $148 million has been rejected,” the government said in a statement.
Disputes arose between the parties which were referred to arbitration for resolution in 2010. So far, the Arbitral Tribunal has passed eight substantial partial awards and 66 of the 69 issues were decided in favour of the government of India in the final partial award passed by the Tribunal in 2016, the government added.
Pursuant to the award, the Government of India issued a demand letter to the contractors calling upon them to pay an amount of $3.85 billion (excluding interest). The contractor failed to make the payment as per the award. Therefore, the government has filed an application for execution of final partial award 2016 before the Delhi High Court.
Reliance and BGEPIL on December 16, 2010, dragged the government to arbitration over cost recovery provisions, profit due to the state and amount of statutory dues including royalty payable. They wanted to raise the limit of the cost that could be recovered from the sale of oil and gas before profits are shared with the government.
The Government of India also raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting. A three-member arbitration panel, headed by Singapore-based lawyer Christopher Lau, by majority issued a final partial award on October 12, 2016. It upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier.
It also upheld that the cost recovery in the contract is fixed at $545 million in Tapti gas field and $577.5 million in Panna-Mukta oil and gas field. The two firms wanted that cost provision be raised by $365 million in Tapti and $62.5 million in Panna-Mukta. Royalty, it said, had to be calculated after the inclusion of marketing margin charged over and above the wellhead price of natural gas.
(With Inputs from PTI)