Arbitration on compensation demand in RIL-ONGC row starts

A three-member arbitration panel has started hearing validity of the government's demand of $1.55 billion as compensation from Reliance Industries for "unfairly" producing ONGC's gas.

The panel, headed by Singapore-based arbitrator Prof Lawrence Boo, had its first hearing on March 3 where the timetable was drawn, sources privy to the development said.

RIL will first file its statement of claim, followed by a statement of defence by the government. This will be followed by rejoinders, counter-rejoinders and oral hearing, sources said, adding that the panel plans to wind up the hearing in a year.

The central government has named former Supreme Court judge G S Singhvi as its nominee on the three-member arbitration panel while RIL and its partners BP Plc of the UK and Canada's Niko Resources have named former UK High Court Judge Bernard Eder to the panel.

RIL-BP-Niko had slapped an arbitration notice on November 11 last year.

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

After deducting $71.71 million royalty paid on the gas produced and adding an interest at the rate of Libor plus 2 per cent, totalling $149.86 million, a total demand of $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 government's compensation claim flowed from the report of the Justice (retd) A P Shah Committee.

The Shah panel, in its August 28, 2016, 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, sources said, accepted the recommendations of the committee and consequently, decided to claim restitution from RIL-BP-Niko for "the unjust benefit received and unfairly retained".

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

The cost recovery issue is 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. Shah, however, said the compensation should go to the government as it is the owner of all unproduced natural resources.