New Delhi: The Indian government will challenge the decision of an international tribunal that has ruled in favour of Mukesh Ambani-controlled Reliance Industries Ltd (RIL), and its partners BP Plc and Niko Resources Ltd, in a gas migration dispute, said a top government official.

The tribunal also awarded costs of $8.3 million to be paid by the government to the consortium.

The dispute pertains to a $1.55 billion penalty imposed on RIL, BP and Niko by India for allegedly exploiting gas reserves belonging to state-run Oil and Natural Gas Corp. Ltd (ONGC) in the course of its own drilling activities. The adjacent deepwater fields in question are RIL’s D6 field (KG-DWN-98/3) and ONGC’s KG-DWN-98/2 block, in the Krishna-Godavari (KG) basin off India’s east coast. RIL, BP and Niko Resources together own the D6 block.

“We will challenge it. Whatever is the process after arbitration we will follow it," said a top government functionary requesting anonymity.

The petroleum ministry had raised the demand on 4 November 2016, 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 ONGC’s.

RIL proposed arbitration to resolve the issue. Accordingly, the government nominated G.S. Singhvi, a former Supreme Court judge and former Competition Appellate Tribunal chairman, as its arbitrator. RIL’s nominee on the arbitration panel was Bernard Eder, a former high court judge in the UK.

“On 11 November 2016, RIL filed a Notice of Arbitration on the alleged migration of gas dispute in accordance with the provisions of the production sharing contract. On 2 February 2017, the arbitral tribunal was constituted and hearings on the dispute concluded in January 2018," Niko said on Tuesday.

A RIL spokesperson declined comment on the government’s plans to challenge the arbitration. However, a senior ONGC executive said, “In all probability, the arbitration’s decision will be challenged."

Queries emailed to a petroleum ministry spokesperson on Wednesday were not immediately answered. An ONGC spokesperson also did not immediately comment on the issue.

According to a report by DeGolyer and MacNaughton, a US-based consultancy selected by both ONGC and RIL that 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.

“All the contentions of the consortium have been upheld by the majority with a finding that the consortium was entitled to produce all gas from its contract area and all claims made by the government of India have been rejected. The consortium is not liable to pay any amount to the government of India," RIL said in a filing to the stock exchanges late Tuesday evening.

ONGC has been unable to produce from the deepwater field off the coast of Andhra Pradesh and is scouting for a partner after Norway’s Statoil ASA and Brazil’s Petroleo Brasileiro SA (Petrobras) quit the consortium. ONGC has been battling concerns over its production capabilities and diminishing yields at its ageing oil fields. Most of the company’s domestic fields are more than 30 years old.

“An international arbitration panel has issued an award in favour of Reliance, BP & Niko (consortium) rejecting completely the claims of the government of India against the consortium in respect of migrated gas, by a majority of 2 to 1," RIL said.

Experts are of the view that such arbitrations also helps strengthen the rules of doing business.

“For ease of doing business, the government is continuously working on dealing with ambiguities in contracts, and laying down guidelines for aspects newly developing in the sector. Arbitrations between operators and the government are bringing to light areas for strengthening the rules of doing business. That said, disputes also impact the sentiments of investors," said Deepak Mahurkar, director (oil and gas industry practice) at PwC India.

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