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Business News/ Industry / Energy/  BP, Niko may formally join RIL arbitration against government
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BP, Niko may formally join RIL arbitration against government

BP, Niko are said to be planning to issue a notice of arbitration against govt levying penalties for a shortfall in gas production from the KG-D6 block

RIL and BP say the decline in current output from D1 and D3 fields to one-tenth of the previously projected 80 million standard cubic metres per day was purely because of unanticipated geological complexities such as a drop in reservoir pressure and ingress of water and sand.Premium
RIL and BP say the decline in current output from D1 and D3 fields to one-tenth of the previously projected 80 million standard cubic metres per day was purely because of unanticipated geological complexities such as a drop in reservoir pressure and ingress of water and sand.

New Delhi: British energy firm BP Plc and Canadian firm Niko Resources Ltd are likely to formally join their Indian partner Reliance Industries Ltd’s arbitration against the Union government levying penalties for a shortfall in gas production from the KG-D6 block.

Faced with a situation where the near double gas rate of $8 per million British thermal unit from next month not accruing to them, BP and Niko are said to be planning to formally issue a notice of arbitration (NoA).

People close to the development said the cabinet had in December last stipulated that the new gas rate will apply to all producers except the KG-D6 block where the contractor, which is fighting the government against levying penalties for a shortfall in output, will have to give bank guarantees equivalent to the incremental revenue it would get from the new rates.

If it is proved that the output shorfall from the D1 and D3 fields in KG-D6 block is deliberate, the bank guarantee will be encashed, depriving RIL of the incremental revenue. While RIL agreed to the condition, the oil ministry felt that the bank guarantees cannot be taken from BP and Niko since they are not part of the arbitration, people close to the development said.

In absence of BP and Niko as part of the arbitration, it was being mulled that their share of incremental revenues from the higher gas price can be put in an escrow account during the pendency of the arbitration. RIL, which is the operator of the KG-D6 block with a 60% interest, will, however, get all the revenues after furnishing bank sureties.

To break the impasse, BP and Niko, which together hold the remaining 40% in the KG-D6 block, separately wrote to the ministry. They said that RIL, in filing the arbitration notice, had acted as an operator representing the interests of all the KG-D6 constituents and they were part of the arbitration.

BP and Niko further stated that as a contractor to the production sharing contract (PSC) they are party to the arbitration and RIL has represented them as per the PSC and JoA (joint operating agreement), people close to the development said. These people said that since the ministry is not convinced by a mere letter, BP and Niko may now formally join the arbitration after dashing off a NoA.

RIL and BP say the decline in current output from D1 and D3 to one-tenth of the previously projected 80 million standard cubic metres per day was purely because of unanticipated geological complexities such as a drop in reservoir pressure and ingress of water and sand.

RIL had dragged the ministry to arbitration in 2012, saying the contract does not provide for levy of a $1.8 billion penalty for output not being in line with projected production profile. Also, BP and Niko had previously submitted that the decision of the tribunal on the gas output issue would be binding on both of them. PTI

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Published: 19 Mar 2014, 05:42 PM IST
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