RIL-ONGC dispute: Krishna-Godavari basin order likely in next 10 days

An international arbitration tribunal is likely to come out with its final award in the next 10 days on the dispute relating to production of migrated gas by Reliance Industries (RIL). 

RIL is in an arbitration dispute with the government over a penalty for allegedly drawing gas from ONGC's block in the Krishna-Godavari (K-G) basin. 

In March 2018, the government had revised the basic penalty claim to $1.46 billion based on its estimate of the migrated gas produced and sold by the contractor consortium — RIL, BP and Niko Resources. 

The revised claim after deduction of royalties was already paid and inclusion of a claim of interest up to December 2017 was to the tune of $245 million, according to Niko Resources. 

A report by Justice A P Shah had said in August 2016 that royalty or any tax that has to be excluded from such quantification of the unjust enrichment is a matter to be decided by the government. 

The Union government had earlier sought a penalty of $1.55 billion.

A three-member panel — headed by Singapore-based arbitration chambers' head Lawrence Boo, government representative and former Supreme Court Judge G S Singhvi and RIL arbitrator & former English High Court Justice Bernard Eder — had concluded its hearing last month. 

"A final judgment is expected by July 31. Then only will we be able to confirm the compensation part of it," said a person close to the development. The revised claim is without deduction of any capital and operating expenditures incurred by the contractor group. 

Niko, in its filing to the Canadian stock exchange last month, had claimed that an expected favourable decision by the arbitration tribunal could enhance the potential to successfully monetise Niko’s interest in the D6 Block.  

It was in November 2016 that the government had slapped the penalty. Following this, RIL had come out with a statement that the contractor's liability has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary.

Later, the Shah panel said the company got 'unjust' benefit from the migration of gas. The Shah panel also agreed to the findings of US-based consultant DeGolyer and MacNaughton (D&M) that submitted its report in November 2015. 

It stated that about 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to RIL's adjoining KG-D6 block from April 2009 to March 2015. The penalty notice was issued based on a gas price of $4.2 per million metric British thermal unit. Shah also suggested that the compensation should go to the government and not ONGC as the government is the owner of all unproduced natural resources.

In the KG-DWN-98/3 block of the K-G basin, RIL had made its discoveries in 2002, while BP and Niko have 30 per cent and 10 per cent stake in the assets, respectively. 

RIL started commercial production from the block on April 1, 2009. 

In July 2013, ONGC had written to the directorate general of hydrocarbons stating that there was evidence of lateral continuity of gas pools of the ONGC blocks with that of RIL. This later turned out to be the base of the dispute.

CHAIN OF EVENTS

2002: RIL made discoveries in KG-DWN-98/3

Apr 1, 2009: RIL starts commercial production of natural gas

Jul 2013: ONGC writes to the government citing lateral continuity of gas pools of the ONGC blocks with that of RIL

May 15, 2014: ONGC moves Delhi High Court

Nov 2015: DeGolyer and MacNaughton states migration of 11.122 billion cubic metres of natural gas took place from April 2009 to March 2015 

Aug 31, 2016: Shah panel’s report confirms migration of gas from ONGC’s fields to RIL

Nov 2016: Operator issues notice of arbitration to Centre

Jun 2018: Arbitration tribunal concludes hearing