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The Central Government is considering appeal against the English Commercial Court arbitration award in favour of Reliance Industries Limited and Shell-owned BG Exploration and Production India (BGEPIL) in a cost recovery dispute in the western offshore Panna-Mukta and Tapti oil and gas fields.

The government on Sunday lost its appeal in the English High Court against a $111 million arbitration award in favour of RIL and Shell.

Reliance and BGEPIL on 16 December, 2010, dragged the government to arbitration over cost recovery provisions, profit due to the State and amount of statutory dues including royalty payable. They wanted to raise the limit of cost that could be recovered from sale of oil and gas before profits are shared with the government.

The government also raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting.

So far, the Arbitral Tribunal has passed eight substantial partial awards. 66 of the 69 issues were decided in favour of the government in the final partial award passed by the Tribunal in 2016.

High Court judge Ross Cranston on June 9, 2022 ruled that the government should have brought its objections over the arbitration tribunal not meeting the required thresholds, when issuing the 2021 award earlier, two sources with knowledge of the matter said.

Rejecting the government's arguments, the court said the objections are barred by an English law principle whereby a party cannot raise matters in new proceedings that could have been raised in earlier proceedings.

The government has issued a demand letter to the contractors calling upon them to pay an amount of $3.85 billion (excluding interest). “The Contractor failed to make the payment as per the Award. Therefore, the Government has filed an application for execution of final partial award 2016 before the Delhi High Court," an official release stated.

In 2016, RIL and BGPIL had challenged the final partial award of 2016 before the English Commercial Court. The challenges were classified under nine broad heads.

“In April 2018 the English Court passed a judgment, in favour of Union of India, dismissing eight out of nine challenges. Regarding the ninth challenge, the Court directed that the matter be remitted back to the Tribunal, for reconsideration," it said. 

The Tribunal subsequently passed its order on this challenge, partly in favour of the contractors. Out of the $402 million claims, the Tribunal allowed a cost of $143 million and denied the contractors, a cost of $259 million.

“Both Government of India and Contractor challenged the 2018 Award before the English Commercial Court. The court disagreed with the Tribunal’s denial of cost of $259 million and in March 2020, remitted this part of the 2018 Award back to the Tribunal," the statement said. 

It noted, “The Tribunal heard the matter again and in Jan 2021 awarded a further sum of $111 million in favour of the Contractors. This was challenged by the Government before the English Commercial Court. The present judgment dated 09.06.2022 is related to this challenge."

“Further, notwithstanding two partial awards of $111 million and $143 million in the favour of Contractor, the larger award amounting to $3.85 billion plus interest by the arbitral tribunal under final partial award 2016 is in favour of Government, and is now being pursued through the Execution Petition filed before the High Court of Delhi," it added. 

“…even in the latest Award and order of the English Court dated 9.6.22 ($111 million), contractor’s claim amounting to $148 million has been rejected," the ministry said.

The Panna-Mukta (primarily an oil field) and Mid & South Tapti (gas field) are shallow-water fields located in the offshore Bombay basin. Discovered by state-owned Oil and Natural Gas Corp (ONGC), they were bid out in 1994 to a consortium of ONGC (40%), Reliance (30%) and Enron Oil & Gas India Ltd (30%).

In February 2002, BGEPIL acquired Enron's 30% stake in the joint venture. BGEPIL was subsequently taken over by Shell.

The production sharing contract (PSC) for the fields stipulated deducting costs incurred on field operations from oil and gas sold before sharing profit with the government. Disallowing certain items in the cost would result in higher profit petroleum for the government.

Reliance and BGEPIL sought raising of cost recovery limit through arbitration.

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