After Reliance Industries wins $1.55 bn claim case against govt, authorities scramble for solution

A day after the government lost $1.55 billion gas migration case to Reliance Industries Ltd (RIL) and its partners, petroleum ministry sources said that the government will take appropriate action after studying the order of the arbitration tribunal. “We will take appropriate action,” said a senior petroleum ministry official. The government may go for a review petition, said another official.

An international arbitration tribunal has rejected Indian government’s claim of $1.55 billion against RIL and its partners BP Plc and Niko Resources Ltd for allegedly siphoning gas from deposits they had no right to exploit. The three-member panel by a majority of 2-1 also awarded $8.3 million (Rs 56 crore) compensation to the three partners.
“ONGC (Oil and Natural Gas Corp) would not like to give up so easily. It is also a prestige issue for the country’s top oil company. The government is likely to go with the ONGC. The government, too, has lost its share of profit and dividend,” said energy expert Narendra Taneja, adding that serious amount of money was involved.

The panel headed by Singapore-based arbitrator Lawrence Boo rejected the government’s demand that Reliance and its partners BP plc of UK and Canada’s Niko Resources pay for “unfairly” producing natural gas belonging to state-owned ONGC. All the contentions of the RIL-led consortium were upheld by the majority with a finding that the RIL-led consortium was entitled to produce all gas from its contract area.

Experts feel that such cases are very difficult to prove unless you have some clinching evidence. “Ideally, the government, ONGC and RIL should sit across the table and decide amicably and find solution. It’s also time the government frames rules so that these things are put in black and white and such situations are avoided in future,” said Taneja.

When contacted, ONGC refused to comment.

Gas reservoirs under water are natural formations and do not respect boundaries. Whoever starts pumping first gets the flow of the gas from the blocks situated next to each other. In this case, RIL started pumping first, while ONGC delayed it, explained experts.

Reliance is the operator of the KG-D6 block with 60% interest while BP holds 30%. The remaining 10% is with Niko Resources.

The government’s compensation claim flowed from the report of the Justice A P Shah Committee. The Shah panel in its report in August 2016 concluded that there has been “unjust enrichment” to the contractor of the block in KG-D6 block due to the production of the migrated gas from ONGC’s blocks KG-DWN-98/2 and Godavari PML.

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It relied on a report produced by petroleum industry consultant DeGolyer and MacNaughton, which concluded that gas had migrated from ONGC-controlled parts of the sea floor and the geological formations beneath it into areas controlled by the private companies.

Source: DNA Money