Shah panel denying compensation to ONGC a judgement error: R S Sharma

A day after the A P Shah committee came out with a report on the migration of gas from Oil and Natural Gas Corporation (ONGC)’s block in the Krishna Godavari basin to the adjacent fields owned by the Mukesh Ambani-led Reliance Industries Ltd (RIL), former ONGC chairman R S Sharma said the panel had made serious error in judgment as far as denying of compensation to the state-run company was concerned. 

The one-man panel, set up on December 15, 2015, stated that ONGC had no right on restitution and no locus standi to bring a “tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas”. The panel was of the view that the compensation must go to the government as government is the owner of natural gas in the country. 

“As far as compensation is concerned, there was a serious error in judgment from the part of the panel. ONGC, having the mining lease, has all the right to enjoy the revenue from these fields. However, the positive part for the company is that its stand regarding migration of gas was validated by the panel and DeGolyer and MacNaughton (D&M),” Sharma told Business Standard. 

The Shah panel agreed with the findings of the report submitted by US-based consultant D&M in November 2015, which stated that about 11.122 billion cubic metres of natural gas worth about ~11,000 crore had migrated to the RIL fields from ONGC’s idle fields, between 2009 and 2013. Sharma was the ONGC chairman from May 2006 to January 2011. 

When contacted, Sudhir Vasudeva, who was the chairman and managing director of ONGC from 2011 to 2014, said, “The matter is sub-judice. I would not like to comment on the observations of Shah panel.”  

The panel stated that the role of ONGC in the Indian oil and natural gas sector must be assessed with great scrutiny and added that the long periods of alleged inactivity on the part of ONGC in this case particularly must be examined further. 

The report pointed out RIL had knowledge about the possible migration in 2003, ONGC too had prior understanding about the continuity way back in 2007 and it took up the matter only after six years. The Shah panel recommended further probe into the subject of prior knowledge about migration by both the parties.

When asked about this, Sharma clarified, “ONGC was never aware about the migration of gas during my tenure. After repeated study, we came to the conclusion that gas from these fields was never going to be viable on a standalone basis. 

So, we decided to go for a cluster development model, even in that case, production from such blocks was not viable without having a gas price of at least $6-7 per million metric British thermal unit. Hence, our conclusion was that these fields were never viable.”

The former ONGC chairman said there was documentary evidence to suggest that RIL had prior knowledge about the migration way back in 2003. “When I was the chairman, we never got any signal or doubt in this regard,” he added. 

The Shah panel’s observation that RIL’s production of migrated gas and retention of the ensuing benefits amounted to unjust enrichment was based on the premise that in the absence of an order on joint development under the production sharing contract, a contractor was not permitted to produce and sell migrated gas. 

There was also no other extra-contractual right granted to the contractor that enabled it to produce gas, regardless of its source. It also highlighted that though RIL had the option to go for joint development, it did not pursue such a step. 

The government is set to take a call on the recommendations by the panel by September 30. According to a D&M report, of the 58.68 bcm (billion cubic metres) of gas produced from the KG-D6 block since April 1, 2009, 8.98 bcm could have migrated from ONGC’s fields. 

RIL’s D1 and D3 fields had estimated reserves of 80.697 bcm, while ONGC’s Godavari-PML had 14.21 bcm of reserves and KG-D5 another 11.86 bcm.