RIL rejects Shah panel role in natural gas dispute with ONGC

Says panel has no legal basis and only arbitration can decide on such disputes

Reliance Industries has disputed the one-man AP Shah Committee constituted by government to decide on the firm's KG gas dispute with ONGC, saying the panel has no legal basis and only arbitration can decide on such disputes, as per the contract.

In a letter to Justice (retd) Shah on the first day of the panel's meeting on December 31, RIL said the committee cannot quantify the compensation to be paid to ONGC for alleged gas flow of the state-owned firm's KG blocks to neighbouring fields of RIL and decided not to cooperate.

In the letter, RIL told the panel that it does not accept that "the Government of India can appoint a 'committee', or the government can deal with any issues on the dispute or for the dispute by constituting a committee."

"Furthermore, it is RIL's respectful submission that the Office Memorandum (of oil ministry that set up Shah panel) is apparently not rooted in any statutory power and is also contrary to the substantive as well as the dispute resolution provisions of the PSC," RIL wrote.

State-owned ONGC, on the other hand, is cooperating and wants the panel to fix compensation and penalty for the natural gas that flowed from its Krishna Godavari basin blocks in Bay of Bengal to neighbouring KG-D6 fields of RIL, official sources said.

It rejected contentions that the cost incurred by RIL in setting up production facilities at KG-D6 will have to be first deducted before any money is due to it, saying the private company had invested money on the basis of discovered and producible gas resources it projected in its block. None of the investments made was for producing ONGC gas.

Moreover, all that investment incurred has been recovered by RIL since April 2009 from sale of gas, 15 % of which has now been established by an independent consultant to have come from ONGC's blocks.

RIL feels the defined process in law is not being followed in the current matter and that disputes under the signed Production Sharing Contract (PSC) have to be referred to arbitration.

It and ONGC have no underlying contract between them and so the only process in law for any dispute to be adjudicated has to be in a court of competent authority, it said.

The company feels the government had been asked by the Delhi High Court to take action, but such action need to be legitimately taken following due process of law.

A committee, such as the Shah Committee, cannot be the competent authority under law to adjudicate this particular matter, it said.

"One of the issues in this particular matter is of quantification, which cannot be quantified by the Shah Committee. This has to be proved by ONGC in a court of law and then to be adjudicated," RIL said.

Maintaining that it has done nothing in breach of its legal obligations under its PSC nor the relevant rules and regulations, RIL said the study by DeGolyer and MacNaughton (D&M) was commissioned without prejudice basis.

"It cannot form the basis of an executive order of the Government, much less form the basis for the appointment of a committee with the Terms of Reference as are contained in the Office Memorandum.