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Business News/ Companies / SC reverses decision on third arbitrator in RIL case

SC reverses decision on third arbitrator in RIL case

Judge withdraws appointment after Centre contends that the name was among those proposed by RIL

The petroleum ministry wants to penalize RIL for a shortfall in natural gas production from the KG-D6 block.Premium
The petroleum ministry wants to penalize RIL for a shortfall in natural gas production from the KG-D6 block.

New Delhi: The Supreme Court on Wednesday reversed its order and withdrew the appointment of Australian James Spigelman as the third presiding arbitrator in the dispute between Reliance Industries Ltd (RIL) and the petroleum ministry on the reimbursement of the cost of developing the KG-D6 offshore gas field.

Justice S.S. Nijjar agreed to reverse the order and struck down Spigelman’s name after the Centre contended that his name was among those proposed by RIL for appointment as an arbitrator.

Nijjar had appointed Spigelman, a former judge of the New South Wales Supreme Court in Australia, on Monday, after saying: “It would be appropriate if an individual not named by any of the parties is appointed as the third arbitrator..."

On Wednesday, he wrote in his order: “It has been pointed out spite of my earlier observations that I shall not appoint an arbitrator from either of the list submitted by the parties, the arbitrator actually appointed happens to be on the list of the petitioners."

Spigelman was to chair the panel consisting of two former chief justices of India—S.P. Bharucha and V.N. Khare. RIL, controlled by Mukesh Ambani, nominated Bharucha and the Centre chose Khare.

Thr reversal of the order is a potential setback for RIL, which had wanted a third arbitrator to be appointed from a country other than India because its partners, Cayman Islands-based Niko Ltd and London-based BP Plc, are foreign companies.

The petroleum ministry wants to penalize RIL for a shortfall in natural gas production from the KG-D6 block off India’s east coast. On 1 August, the regulator told the oil ministry to consider reducing an amount of $1.8 billion from the costs incurred by the firm.

International reservoir expert P. Gopalakrishnan was appointed in 2011 to review the performance at KG-D6. In his report, Gopalakrishnan blamed RIL for the fall in production and said it had not drilled as many wells as it had promised in its plan.

The government said this was responsible for the gas output falling by more than 80% from the KG-D6 block. RIL has claimed that the reserves have dropped because of previously unknown geological factors and the un-drilled quota of 11 wells would not increase production.

An RIL spokesperson declined comment on the Supreme Court’s decision on Wednesday. On 1 April, the company said, “Both Reliance and the government of India are bound by the PSC (production-sharing contract). According to the PSC, any dispute between the parties can be resolved only through the process of arbitration."

RIL had initiated arbitration proceedings in November 2011 in anticipation of a move by the government to restrict the cost recoverable by the company for developing the KG-D6 field.

“The dispute arose when the recoverable gas from the field was found to be lesser than the initial estimates. Post this development, the central government had wrongfully sought to disallow recovery of full costs incurred by Reliance in the block. As a result, Reliance was compelled to proceed with arbitration. But since there was no consensus on the appointment of the third arbitrator, Reliance had to approach the Supreme Court," the 1 April RIL statement added.

The reversal of Spigelman’s appointment follows the government’s deferment of a gas price increase, due to take effect on 1 April, on a directive by the Election Commission, until after the completion of the 2014 general election in May.

The opposition Bharatiya Janata Party, seen by opinion polls as the frontrunner, has said it would revisit the decision to increase the gas price.

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Published: 02 Apr 2014, 03:36 PM IST
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