The government has slapped ONGC, Reliance Industries and Royal Dutch Shell with a demand of $3.9 billion (about Rs 25,487 crore) in dues following an arbitration award in its favour, the state-owned firm said on Thursday. The demand notice pertains to interpretation of the contract for the Panna-Mukta and Tapti (PMT) oil and gas fields in the Arabian Sea. "The directorate general of hydrocarbons (DGH), vide letter dated May 25, 2017, marked to all joint venture partners -- RIL, BG Exploration and Production India Ltd (now taken over by Shell) and ONGC -- has asked for payment of differential Government of India's share of profit petroleum and royalty alleged to be payable by contractor pursuant to the government's interpretation of the Final Partial Award," the company said in a regulatory filing. ONGC, which owns 40 per cent stake in PMT fields, said its share out of the demand notice amounts to $1.57 billion, equivalent to Rs 10,195 crore. RIL and Shell hold 30 per cent stake each. The notice does not contain any date for making the payment or consequences that would follow if the payment is not made. In its first quarter earnings statement, ONGC said the production sharing contracts (PSCs) for Panna-Mukta and Mid and South Tapti areas were signed on December 22, 1994, for 25 years. "In December 2010, RIL and BGEPIL invoked an arbitration proceeding against the Union of India in respect of certain disputes, differences and claims arising out of or in connection with both the PSCs," it said, adding that it did not participate in the arbitration following a specific instruction to that effect from the oil ministry in July 2011. However, in the case of an arbitral award, the same was to be applicable on ONGC as a constituent of the contractor. "On October 12, 2016, a Final Partial Award (FPA) was announced by the tribunal in the arbitration matter," it said. ONGC said that in response to the government notice, the other joint venture partners led by RIL have stated that the demand is "premature as the FPA does not make any money award in favour of the Government of India as quantification of liabilities is to be determined during the final proceedings of the arbitration and the same has been challenged for the English Commercial Court". "Pending final quantification of liabilities by the Arbitration Tribunal and decision of the English Commercial Court, the company is not liable to implement the FPA being premature and therefore, no provision for the same has been considered necessary (in the first quarter earning statements)," it said. Last November, RIL and Shell had challenged in the English court a three-member arbitration panel headed by Singapore-based lawyer Christopher Lau's FPA upholding the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33 per cent and not the 50 per cent 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. Shell became the operator of the field last year after taking over BG.