Home >Companies >RIL takes Indian govt to arbitration over gas pricing delay
The arbitration notice was issued to the govt on 9 may 2014
The arbitration notice was issued to the govt on 9 may 2014

RIL takes Indian govt to arbitration over gas pricing delay

RIL says the delay in notifying the higher prices of gas has resulted in a loss of Rs300 crore per month

Mumbai: Reliance Industries Ltd (RIL), with its partners UK oil and gas giant BP Plc (BP) and Canadian explorer Niko Resources Ltd (Niko), slapped an arbitration notice on the Government of India, seeking a hike in natural gas prices which was notified by the government on 10 January, 2014.

“The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the Gas to be sold has left the Parties with no other option but to pursue this course of action. Without this clarity, the parties are unable to sanction planned investments of close to $4 billion this year," said a statement jointly issued by the companies on Saturday.

Seeking early implementation of the Domestic Natural Gas Pricing Guideline 2014, which was notified by the government in January this year, the statement said a delay in implementation of the price hike will also delay the ability of the Parties (RIL, BP and Niko) to appraise and develop other significant discoveries made last year.

The Domestic Natural Gas Pricing Guideline 2014 proposed to increase the price of gas from $4.2 per million metric British thermal units (mmBtu) to above $8 per mmBtu effective 1 April, 2014 as per a formula proposed by the Rangarajan Committee in June 2013.

The statement by the companies also pointed out that the parties were planning to invest $ 8-10 billion in the next few years to significantly increase production from the KGD6 block.

Last year the company and its partners had discovered a huge gas field 2 kilometres below the existing gas field D1 and D3 in the Krishna Godavari basin in the east coast of India. The partners were expected to complete the appraisal programme by July this year.

In a note attached to the arbitration notice, RIL said that the delay in notifying the higher prices of gas has resulted in a loss of Rs300 crore per month.

“Most capriciously, there is no clarity on what the gas price would be in the future, failing which all our current and future investment plans are in jeopardy." The contractor group which was getting ready to sanction the first major project with an investment of $4 bn in June/July 2014, is now forced to halt activities, the note added.

The arbitration notice was issued to the government on 9 May 2014, said the release.

While the government had published the hike in gas price in January 2014 to be effective from April 2014, the same could not be implemented as the Election Commission had directed the Government on 24 March to defer the price hike till the general elections were over and the model code of conduct was lifted.

The Election Commission had acted on a request by Aam Aadmi Party (AAP) convenor who had complained that the increase in gas price was against the Model Code of Conduct.

Gagan Dixit, an analyst with brokerage Quant , said the move by RIL is a pressure tactic to implement the price hike at the earliest as soon as the model code of conduct is lifted. Once there is a change in regime, the price hike could be delayed further, he pointed out.

In fact, a corporate lawyer who did not wish to named as his firm has worked with one of the companies as his clients, said any Indian arbitration usually takes more than two years to settle. Therefore, parties do not really want to take it that long.

“When an arbitration notice is filed, the next immediate step is for the other party to give a response on whether it agrees with the complaint or disagrees. If it agrees then the matter is usually settled very soon and relief is granted," he said.

However, he said if the party does not acknowledge the fault pointed out, then both the parties appoint individual arbitrators who then appoint a third arbitrator and constitute the arbitral tribunal. This is when the hearing starts which can end over a period of two years and more.

“The pricing issue has been hanging for quite some time. Since a fixed date had been given by the SC, as I told the court - we did not initiate arbitration on the relinquishment or pricing issues. Now that the case will have to be re-fixed and reheard, and in the meanwhile, the earlier GSPA’s have elapsed, the Contractor has to protect its rights," said RIL’s lawyer Harish Salve.

Asked whether the move was a pressure tactic, he said: “Seeking a dispute resolution can hardly be called a pressure tactic. We now have a tribunal in place - we wanted to invite the government to have the entire matter resolved in one go. “

Saying that the next move is for the government to make, Salve added, “This is not war. It’s just an arbitration."

Reliance Industries Ltd gained 3.93% to close at Rs997.35 per share on Friday on the BSE, while the benchmark index, Sensex gained 2.91% to close at 22994.23 points and BSE Oil&Gas Index gained 3.44% to close at 10099.28 points.

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