Shareholders watch a television broadcasting Mukesh Ambani, chairman and managing director of Reliance Industries Ltd., (Photographer: Prashanth Vishwanathan/Bloomberg News)

Reliance Industries To Challenge Government’s $1.55 Billion Penalty

Reliance Industries Ltd. (RIL) will challenge the $1.55 billion penalty imposed by the ministry of petroleum and natural gas, the company said in a media statement. The gas explorer and its two foreign partners BP Plc and Niko Resources Ltd. in the Krishna-Godavari Basin were served with separate notices for extracting gas which had migrated from the adjacent offshore fields allocated to Oil and Natural Gas Corporation Ltd. (ONGC).

The claim of the government is based on misreading and misinterpretation of key elements of the PSC (production sharing contract) and is without precedent in the oil & gas industry, anywhere in the world...RIL proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the government. RIL remains convinced of being able to fully justify and vindicate its position that the government’s claim is not sustainable.
Reliance Industries statement

BP and Niko Resources hold 30 percent and 10 percent stake respectively in the Krishna-Godavari Basin. The remaining 60 percent is owned by RIL.

The Government’s Rationale

A top oil ministry official confirmed to BloombergQuint earlier in the day that notices were sent to the three companies seeking the said amount as restitution for unlawfully extracting gas that flowed in from ONGC's fields. The official requested anonymity due to the sensitivity of the case.

The move followed a recommendation by the Directorate General of Hydrocarbons to the oil ministry based on the Justice AP Shah report. The report had found that Reliance Industries had indeed benefitted from gas migration from ONGC’s fields in the Krishna-Godavari Basin into adjacent oilfields, allocated to Reliance Industries.

Justice Shah had noted that, "RIL’s production of migrated gas and retention of the ensuing benefits amount to unjust enrichment, since the production sharing contract, in the absence of an order on joint development under Article 12, does not permit a contractor to produce and sell migrated gas."

The oil ministry had set up a one-man committee headed by Justice AP Shah to look into the dispute between ONGC and RIL on the migration of gas between ONGC and RIL’s fields.