RIL Clears The Air, Won’t Withdraw Ongoing Cost Recovery Arbitration For KG-D6
Arbitration on KGD6 cost recovery to continue, says Reliance Industries.
Reliance Industries chairman Mukesh Ambani told shareholders last week that the company will continue with the cost recovery arbitration over the Krishna Godavari - D6 (KG) basin, thereby clearing the air on speculation that Reliance along with its joint venture partner was close to dropping the arbitration.
Our upstream business is in partnership with BP and we want to constructively make sure that we are not going to withdraw the arbitration and we are hopeful of finding an acceptable solution.Mukesh Ambani at the September 1 Annual General Meet in Mumbai
With this statement, Reliance Industries ended all speculations about the group and its partners opting out of arbitration to avail the benefits of higher gas pricing made available under the government’s new policy announced in March this year.
The government has doubled prices for gas from “difficult and undeveloped fields” which includes deep sea and high-temperature fields to $6.61 per unit as against $3.06 per unit for domestic gas operators, according to the new gas pricing policy. But the policy also states that operators like Reliance Industries who are currently involved in any form of litigation with the government will not be allowed to avail these benefits.
Reliance Industries’ partners BP Plc and Niko Resources are parties to this ongoing arbitration as BP holds 30 percent stake and Niko Resources 10 percent stake in RIL’s KG D6 block.
The arbitration dates back to 2010 and went to the Supreme Court twice as the government and RIL were not able to decide on a common name for the presiding arbitrator to decide the dispute. In September 2013, the Supreme Court appointed retired Australian Judge Justice Michael Kirby as chairman or presiding arbitrator. The Indian government appointed retired Justice VN Khare while Reliance Industries appointed U.K. judge Sir Bernard Rix as their arbitrators to resolve the dispute.
This arbitration panel will decide if the Ministry of Petroleum and Natural Gas was correct in disallowing over $2.3 billion of KGD6 cost for not meeting output targets set in the production sharing contract.
As per RIL’s regulatory filing on August 18 this year, the government has disallowed the company from recovering cost of $2.756 billion on cumulative basis upto 2014-15 and the government has further asked for additional profit petroleum share of $246.9 billion on cumulative basis upto the same period.
Evry year, based on its own interpretations of the PSC (production sharing contract) and assumptions (with which Reliance does not agree), MoPNG revises the total cost it proposes to disallow and consequently aggregate the figure with the figures of the previous year, It also demands additional profit petroleum (in total including previpous years claims) as GOI (Government of India) share.Reliance Industries’ BSE filing
The group further informed that the government has already collected $81.7 million in gas pool account towards petroleum profit claims.
At the shareholders’meet, Ambani also stressed on Reliance Industries decision to exercise its legal rights regarding the long pending issue of cost recovery in KGD6 basin.
“We will both work constructively and not give up our legal rights and we expect the results in consultation with our partner BP as we have to respect our partner,” Mukesh Ambani told shareholders last week.
Lawyers close to the development of the ongoing arbitration said it will not be appropriate for them to comment as the dispute is still being decided.