KG basin issue: RIL serves arbitration notice to government

RIL servers notice after petroleum ministry asked it to pay $1.55 billion for allegedly producing gas from a KG basin reservoir connected to that of ONGC


The move is set to secure more time for RIL to resolve the dispute and help it avoid any immediate financial impact. Photo: Reuters
The move is set to secure more time for RIL to resolve the dispute and help it avoid any immediate financial impact. Photo: Reuters

New Delhi: Reliance Industries Ltd (RIL) on Friday served a notice to the government, demanding arbitration after the ministry of petroleum and natural gas asked it to pay $1.55 billion for allegedly producing gas from a reservoir in the Krishna Godavari basin geologically connected to that of state-owned Oil and Natural Gas Corp. Ltd (ONGC), said a person aware of the development.

The move is set to secure more time for RIL to resolve the dispute and help it avoid any immediate financial impact.

The ministry raised the demand on 4 November, giving RIL one month to pay up, after the justice A.P. Shah panel told the ministry on 31 August that RIL should make up for the “unfair enrichment” it had obtained by way of retaining the gains of gas that seeped into its field from that of ONGC.

The one-member panel, which looked into ONGC’s complaints of gas flow between the two companies’ blocks, had also said that it is the government, not the state-run firm, which is eligible for compensation from RIL.

The Mukesh Ambani-promoted firm has questioned the way the government interpreted the production lease for its KG-DWN-98/3 (KG D6) block and alleged that the manner of claiming compensation neither conformed to law nor to global practices, the person cited earlier said, on condition of anonymity. RIL, as the operator of the KG D6 block, has sought arbitration on behalf of the consortium comprising Canada’s Niko Resources Ltd and BP Exploration (Alpha) Ltd, the person said.

Emails sent to the three companies remained unanswered at the time of going to press.

A government official privy to the developments, however, said there was no way of resolving the dispute other than RIL paying for the gas that did not belong to its field. With both sides hardening their positions, the dispute is set to slip into a protracted legal battle.

According to a report by DeGolyer and MacNaughton, a US-based consultancy selected by both ONGC and RIL which was relied upon by the Shah panel for confirmation of the gas flow between the blocks, about 11 billion cubic metres (bcm) of gas migrated to KG D6 from adjacent fields between 1 April 2009 and 31 March 2015, of which 8.9 bcm was tapped by RIL. The government official cited above said the ministry has not applied any discretion in arriving at the compensation figure.

“The government merely multiplied the amount of gas found by independent consultants to have flowed between the fields with the applicable gas price,” the official said.

“Prolonged disputes are not in the interest of the industry’s development. In the natural resources industry, there can only be losers, not winners, at the end of a prolonged dispute,” said Kalpana Jain, senior director, Deloitte in India.

READ MORE