Govt may move HC against arbitration ruling that went in favour of RIL

The ministry of petroleum and natural gas has sought legal opinion on an arbitration ruling that went in favour of Mukesh Ambani’s Reliance Industries (RIL) in the gas migration dispute. 

The government is likely to appeal against the 198-page final award in the Delhi High Court within the next 90 days. A three-member panel said the companies have the contractual right to produce all hydrocarbons resulting from petroleum operations conducted within the contract area. 

This may include hydrocarbons that could have migrated from an adjacent block. This is despite its finding that gas had migrated from Oil and Natural Gas Corporation’s (ONGC) area to that of RIL’s block. 

Under the Arbitration and Conciliation Act, an arbitral award is final and binding on the parties and persons, subject to appeal by either parties under limited circumstances. The arbitration was between RIL and the Union government since a panel had earlier recommended that ONGC should not get a claim on the penalty amount since there is public ownership of resources.

RIL approached an international arbitration tribunal after the government slapped a penalty of $1.55 billion on the consortium that has BP and Niko Resources as other partners. 

“The award will not result in any cash inflow to the company, but could enhance the potential to successfully monetise Niko’s interest in the D6 Block or secure financing for the R-Cluster, Satellite Cluster and MJ development projects in the D6 Block in India,” Niko said in a filing to the Toronto Stock Exchange on July 31.   

While quashing all the claims by the government that gas was intentionally drawn by the companies, the order stated that the consortium is entitled to retain all benefits, including cost and profit petroleum, from production. RIL had filed the notice of arbitration on November 11, 2016, in accordance with the provisions of the production sharing contract.

In its argument, RIL had stated that any recovery by the government must also factor in the cost of capital. The companies argued that estimating a cost of capital of 10 per cent, it suffered an economic loss to the tune of $4.4 billion. Following this, the panel awarded costs of $8.3 million (Rs 564.40 million), to be paid by the government to the consortium.

One of the key arguments that the government had was that Reliance had prior knowledge about the interlinking of blocks way back in 2003 through Niko Reserve Reports. However, the tribunal led by Singapore-based arbitration chambers’ head Lawrence Boo said the government could have exercised its discretion to order joint development.  

In his dissenting note, government representative GS Singhvi, however, said, “The failure of the government to order joint development does not confer any right upon the claimant to derive migrated gas from outside its contract area.” 

Singhvi was the government representative on the panel that had Bernard Eder and Lawrence Boo as other arbitrators. “Ideally, the battle should have been between ONGC and RIL and not the government. With the government coming into it, the stand of ONGC being the owner of the block has weakened. 

The judgment is surprising as there was proof, including the report by DeGolyer and MacNaughton (D&M), stated that 11.122 billion cubic metres gas migrated from one block to another,” said a person close to the dispute on condition of anonymity. He said that the government must appeal against the move. The three-member arbitration tribunal was constituted on February 2, 2017, and hearings on the dispute concluded in January 2018.