Gas migration case: RIL initiates arbitration against govt

RIL has challenged the Centre's notice imposing a penalty of $1.55 billion

Mukesh Ambani’s Reliance Industries (RIL) and its partners, BP and Niko Resources, have initiated an arbitration process against the Centre’s notice imposing a penalty of $1.55 billion on them for allegedly using migrated gas from state-run Oil and Natural Gas Corporation’s asset in the KG-D6 block. 

The penalty was announced on November 3. RIL had said the contractor’s liability had not been established by any process known to law and quantification of the purported claim was arbitrary. 

“RIL remains convinced of being able to fully justify and vindicate this position,” it said. The company is already locked in arbitration with the government on various other issues related to KG-D6. The petroleum ministry came out with a penalty notice after a report by a one-man panel of ex-judge A P Shah suggested this be done, for ‘unjust’ benefit from the migration of gas.

The Shah panel agreed with US-based consultant DeGolyer and MacNaughton (report in November last year) that 11.122 billion cubic metres of natural gas had migrated from ONGC’s 98/2 area to RIL’s adjoining KG-D6 block from April 2009 to March 2015. The penalty was based on a gas price of $4.2 per million British thermal units. 

RIL had made its discoveries in 2002; BP and Niko have 30 per cent and 10 per cent stake in the assets, respectively. RIL started commercial production from the block on April 1, 2009. In July 2013, ONGC wrote to the Directorate General of Hydrocarbons (DGH), stating there was evidence of lateral continuity of gas pools of the ONGC blocks with that of RIL. Consequently, ONGC sought data on RIL’s block.

RIL and ONGC held a series of discussions and it was agreed that an independent consultant would be jointly appointed to carry out a study. However, before one was identified, ONGC petitioned in the Delhi High Court, in May 2014, against the Government of India, DGH and RIL. It was following the court decision that the government had set up the Shah panel.