Anil Agarwal-led Vedanta got a relief when the Supreme Court on Wednesday rejected the government plea challenging an arbitration award allowing the company to recover $499 million instead of $198 million it (government) had capped for developing the Ravva oil and gas fields.
The dispute pertains to the interpretation of the production-sharing contract (PSC) entered into by the parties and, specifically, the recoverability of base development costs (BDCs) incurred by contractors in the Ravva field.
Both the government and Cairn Oil and Gas (a vertical of Vedanta) had entered into a PSC in 1993. According to the agreement, it was decided that the party should carry out the development of the field, including 21 wells, at a capped cost of $188.98 million along with 5 per cent charges, which is known as BDC. The dispute is related to cost recovery for a period between 2000 and 2007.
The government’s claim was that the contractor unilaterally recovered $499 million, which was more than what was capped. Later, the case was dragged to a Malaysian tribunal, which ruled in favour of Cairn in January 2011. Then in 2018, the issue came up before the Delhi High Court, which refused a stay on the tribunal order. The government then appealed against the order in the Supreme Court.
“We welcome the Supreme Court’s decision in the matter. This verdict would help create positive sentiment in the global business community. We look forward to stepping up our efforts in making India Aatma Nirbhar in the hydrocarbon sector and continue to work closely with the government,” said Sunil Duggal, group chief executive officer, Vedanta.
Videocon Industries was another respondent in the case since it holds an interest in the field.
In response to questions from Business Standard, Cairn said this ruling ended ambiguity on various issues and upheld a fair arbitration process followed by Indian courts. Vedanta had acquired Cairn India from UK-based Cairn Energy in August 2010 for $8.67 billion.
The Ravva oil and gas field is located in the shallow offshore area of the Krishna-Godavari basin on the eastern coast of India. ONGC owns 40 per cent in the block, followed by 25 per cent by Videocon, 22.5 per cent by Cairn, and 12.5 per cent by Ravva Oil.
Average production in the Ravva block during 2019-20 was 14,232 barrels of oil equivalent per day (boepd), while it increased to 22,037 boepd during the first quarter of 2020-21.
Vedanta is the sole bidder for Videocon’s stake in Ravva oil and gas field, which is part of the assets of Videocon undergoing insolvency proceedings at the National Company Law Tribunal (NCLT).