While Shell India and Reliance Industries hold 30% each in the PMT joint venture, ONGC holds the remaining 40%.
A British court has sent one of the nine issues back to the arbitration tribunal hearing the Panna-Mukta and Tapti (PMT) fields case to decide the final award, while ordering Reliance Industries, Royal Dutch Shell and ONGC to pay the government of India 90% of the costs incurred in proceedings, in addition to £723,962 towards interim payment. In December 2010, Reliance Industries and BG (taken over by Shell later) invoked arbitration against the government following a dispute over the Centre’s share of profit and royalty from the PMT fields. ONGC is not part of the arbitration.
According to sources, the High Court of London rejected the petition of the companies in respect of eight challenges. In the case of the remaining one, the court remitted the issue back to the tribunal for consideration within three months. Reliance Industries further filed an application for permission to appeal against the order of the court, but the application was rejected by the court by an order dated May 2, 2018. In the same order, the companies were told to pay the above-mentioned sum.
The tribunal passed a ‘final partial award’ on October 12, 2016, which dealt with multiple issues such as the cost recovery limit, income tax rate, investment multiple, royalty and scope of a report by the CAG.
Based on the award, the Directorate General of Hydrocarbons (DGH) claimed a total of $3.8 billion from these companies as per their share in May 2017. The award by the tribunal was challenged by the firms in a British court. After the May 2, 2018 ruling by the court, the DGH reiterated its demand for $3.8 billion.
While Shell India and Reliance Industries hold 30% each in the PMT joint venture, ONGC holds the remaining 40%. Panna and Mukta are oilfields while Tapti is a gas field – all located near the Bombay High facility of ONGC. A Reliance Industries spokesperson in an email said, “RIL has already provided the appropriate disclosures to the regulatory authorities with respect to the English court proceedings. You would appreciate that since the arbitration proceedings are presently sub judice and confidential in nature, RIL is not in a position to make any further statement on the issues which are presently in arbitration.”
The company on May 24, 2018 said in a stock market filing, “Before taking up the issue of quantification of liability, the tribunal has to decide the issue which is remitted by the English court to it and apart from that BG-RIL proposes to file an application to the tribunal for increase of the cost recovery limit which they are entitled to do under the production sharing contracts. The tribunal can consider the issue of quantification of liability (if any) only after these two issues are decided.” ONGC did not respond to an email sent by FE.
A Shell spokesperson said, “The arbitral process is still ongoing and is subject to confidentiality restrictions and any view on the outcome of this process, including any potential payments by either of the parties, are premature at this stage since further proceedings, including quantification, are yet to be concluded.”
The issue to be decided by the tribunal is regarding the cost recovery limit. According to sources, in the PMT case, cost recovery was defined as per the work programme and achievement of production level. In Panna-Mukta, even before executing the defined work programme, the production level was achieved and contractors claimed the entire cost recovery. The government, however, said the defined work programme needs to be achieved to claim the cost recovery limit.
In case of Tapti, while the entire work programme was executed, the defined production level could not be reached. However, the government allowed entire cost recovery taking a view that production is a subsequent result and given that the defined work programme was achieved.
As reported by FE earlier, Shell India has written to the government that it will not be seeking an extension of its production sharing contract for PMT which is due to expire in December 2019.