RIL names SP Bharucha as arbitrator in KG-D6 cost issue

Reliance Industries (RIL) has proposed to appoint former Chief Justice of India SP Bharucha as its arbitrator against the government to resolve the issue of cost recovery from KG-D6 gas block.

"They [RIL] have appointed Justice [retired] SP Bharucha... We will respond to the arbitration notice after receiving inputs from the Law Ministry," Oil Minister S Jaipal Reddy told reporters here.

RIL had on November 23 slapped an arbitration notice against the ministry's proposed move to restrict cost recovery at KG-D6 in proportion to the natural gas output from the block.

While RIL has built facilities to handle 80 million standard cubic metres per day (mmscmd) and claimed cost recovery of the investment but the output has fallen to less than 39 mmsmcd.

The ministry and its technical arm Directorate General of Hydrocarbon (DGH) blame the fall in output at KG-D6 from 61.5 mmscmd achieved in March 2010, instead of raising it to about 70 mmscmd this fiscal and 80 mmsmcd by April, on RIL drilling and completing only 18 wells against planned 31 wells.

RIL on the other hand blames it on reservoir not behaving in the previously predicted fashion, fall in pressure in wells and water and sand ingress for fall in output. It wants to do more studies before drilling more wells.

"We have referred the issue [of arbitration notice slapped by RIL] to the Law Ministry and Solicitor General of India. We have not received their response yet. Once we receive the opinion, we will respond to them," Reddy said.

The Oil Ministry feels the arbitration is "unavoidable" but it wants law ministry opinion first.

RIL's arbitration notice gave the ministry time till December 23 to appoint its arbitrator. A third neutral arbitrator was to be appointed by the arbitrators of RIL and the ministry.

The ministry had sought an extension of the deadline till January-end. It may seek another extension if the law ministry opinion does not come before the month end.

Reddy on his part said the Law Ministry opinion was expected "soon."