Arbitration Panel has Issues an Award in Favour of Reliance-led Consortium
23 Aug 2018
An arbitration panel has issued an award in favour of Reliance-led consortium in the so-called gas migration dispute case, RIL said, filing to the stock exchange.
The panel has rejected the government’s contention that Reliance and its partners unjustly gained by producing gas from ONGC’s fields in the KG basin and must return the gains by paying $1.55 billion to the government.
“All the contentions of the consortium have been upheld by the majority with a finding that the consortium was entitled to produce all gas from its contract area and all claims made by the Government of India have been rejected. The consortium is not liable to pay any amount to the Government of India,” the company said. The tribunal also directed the government to pay $8.3 million, or Rs 56 crore, as the cost of arbitration to the consortium that includes BP Plc and Niko Resources.
The arbitration tribunal was split two to one with GS Singhvi, the former Supreme Court judge and the government nominee on the panel, writing a long dissent note. Bernard Eder, a former UK High court judge nominated by Reliance, and Singapore-based Lawrence Boo were the other two arbitrators.
As per the majority verdict, Reliance and its partners were well within their rights under the contract to produce the gas that had migrated from the ONGC fields in the KG Basin, and had not unjustly enriched themselves, according to people familiar with the arbitration award. The majority of the panel agreed with RIL’s view that the production sharing contract doesn’t prohibit the contractor from producing gas—irrespective of its source—as long as the producing wells were located inside the contract area, people familiar with the award said. The panel rejected the government’s plea that RIL had unjustly enriched itself on the ground that the company had made the required capex for extraction of gas and had also paid royalty and profit petroleum due to the government on all gas produced from the field, they said.
In his dissent note, Singhvi cited two previous judgements on public trust doctrine and unjust enrichment. He also relied upon the reports by consultant D&M and the Shah panel, people cited above said.
This is the second legal setback for the oil ministry in two months — Delhi High Court on May 31 ordered the government to extend Vedanta’s contract for the prolific Barmer block on the same terms as in the original contract. The government has appealed that order.
The government is studying the gas arbitration award and may challenge it in court in the near future although no decision has yet been made, the people cited above said, adding that the dissent note by Singhvi will help in making an appeal in court. Any court appeal means the matter may drag on for many more months.
An email sent to the oil ministry elicited no response till the time of going to press.
The tribunal’s ruling contradicts the findings of an official panel led by retired judge AP Shah. The recommendations of that panel, published in 2016, formed the basis for the government’s demand of $1.55 billion from Reliance and its partners. Reliance had then called the government demand arbitrary and invoked arbitration proceedings.
The dispute began in 2014 when state-run ONGC approached the Delhi High Court, complaining that gas from its blocks was being produced by Reliance. The two companies appointed D&M, a US-based consultant, to examine the issue.
The government, which was directed by the court to resolve the matter, appointed the Shah panel to study the D&M report and recommend ways to prevent such incidents in future.
The panel said RIL had unjustly gained by producing gas that didn’t belong to the company and must return the gains to the government, which owns the gas that state-run ONGC was yet to extract from the two fields it operated. Reliance had produced gas that had migrated to its field in the KG basin from ONGC’s KG-DWN-98/2 block and Godavari PML, which share borders with the RIL’s block.
The government accepted all recommendations of the Shah panel, which said RIL must compensate the government, not ONGC, the original petitioner in the case. With this, the government replaced ONGC in the dispute with Reliance.
The $1.55-billion demand included the alleged benefit RIL received by drawing ONGC’s gas until March 2016, the accumulated interest on the amount, and $175 million by way of additional cumulative profit petroleum.