Gas migration case: Govt to seek legal view on joining BP-RIL arbitration

Government is considering joining the arbitration initiated by Reliance Industries and its partners against a USD 1.55 billion demand raised on them for "unfairly enriching" by producing natural gas belonging to ONGC.

RIL and its partners BP Plc of the UK and Canada's Niko Resources had on November 11 brought an arbitration notice against the government, disputing the USD 1.55 billion demand.

"We have received the notice and are studying it. We will take an opinion of the law ministry on joining the arbitration," a senior oil ministry official said.

Under the dispute resolution mechanism set out in the production sharing contract (PSC), an arbitration notice over a dispute has to be followed up within six months by naming arbitrators.

So, RIL and its partners have time till May 10 to name an arbitrator for the dispute. The government will thereafter name its arbitrator and the two will then decide on a presiding judge of the three-member arbitration panel.

Often, the two do not agree on the presiding arbitrator and the matter over such appointment lands either at the International Court of Justice or the Supreme Court.

"It is a long-drawn affair. If you are looking for a quick-fix solution, it won't come so easy," the official said.

The oil ministry had on November 3 issued a notice to RIL, Niko and UK's BP Plc seeking USD 1.47 billion for producing in the seven years ended March 31, 2016 about 338.332 million British thermal unit of gas that had seeped or migrated from the state-owned Oil and Natural Gas Corporation's (ONGC) blocks into their adjoining KG-D6 in the Bay of Bengal.

After deducting USD 71.71 million royalty paid on the gas produced and adding an interest at the rate of Libor plus 2 per cent, totalling USD 149.86 million, a total demand of USD 1.55 billion was made on RIL, BP and Niko.

RIL is the operator of the KG-D6 block with 60 per cent interest while BP holds 30 per cent. The remaining 10 per cent is with Niko Resources.

The Justice (retd) A P Shah Committee, in its August 28 report, concluded that there has been "unjust enrichment" to the contractor of the block KG-DWN-98/3 (KG-D6) due to production of the migrated gas from ONGC's blocks KG-DWN-98/2 and Godavari PML.

The government, the official said, has accepted the recommendations of the committee and consequently, it decided to claim restitution from RIL-BP-Niko for "the unjust benefit received and unfairly retained".

So, a notice was sent, he said, adding that the government is also pressing RIL to pay USD 174.9 million of additional profit petroleum after certain costs were disallowed because of KG-D6 output being lower than targets.

The cost recovery issue is also being arbitrated separately.

Originally, ONGC had sued RIL for producing gas that had migrated from its blocks KG-DWN-98/2 (KG-D5) and Godavari PML in the KG basin to adjoining KG-D6 block of RIL.

Under direction of the Delhi High Court, the government had appointed a one-man committee under retired Justice A P Shah to go into the issue.