RIL wins arbitration case against govt's claim of illegal gas production

In a major blow to the government in the gas migration dispute between Reliance Industries (RIL) and state-owned ONGC, an international arbitration tribunal on Tuesday ruled in favour of a consortium led by the Mukesh Ambani-led conglomerate. 

The tribunal rejected the government’s claim of illegal gas production by the consortium from the neighbouring block of ONGC in the Krishna-Godavari (KG) basin. In addition, it awarded costs of $8.3 million (Rs 564.40 million), to be paid by the government to the consortium.

The arbitration was over a dispute regarding a penalty of $1.55 billion slapped by the government on RIL and its partners, BP Plc and Niko Resources, for allegedly drawing gas from ONGC’s block. The three-member tribunal, led by Singapore-based arbitration chambers’ head Lawrence Boo, rejected the government claim by a majority of two votes to one. The other two members in the panel were government representative and former Supreme Court Judge G S Singhvi and RIL arbitrator former English High Court Justice Bernard Eder. 

The penalty was slapped on the companies by the government in November 2016. This was based on the findings of the US-based consultant DeGolyer and MacNaughton (D&M), which submitted its report in November 2015. 

The report stated that 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. 

After this, Reliance had come out with a statement that the contractor’s liability had not been established by any process known to law and the quantification of the purported claim was without any basis. 

Later, a single-member panel of Justice A P Shah, set up under the guidance of the Delhi High Court, said the company got “unjust” benefit from the migration of gas. Shah also suggested that the compensation should go to the government and not ONGC, as the government was the owner of all unproduced natural resources.