The Oil Ministry proposed the name of former Chief Justice of India V N Khare as its arbitrator to decide on the dispute with Reliance Industries over fall in natural gas production from KG-D6 gas fields.
The ministry wants to penalise RIL for 25.33 million standard cubic meters per day (mmscmd) output from the main fields in KG-D6 falling way short of 80 mmscmd target.
The Mukesh Ambani-run firm has contested the move saying its contract for KG-D6 does not provide penalty for not achieving indicative output targets and had slapped an arbitration notice.
RIL has already appointed former Chief Justice of India S P Bharucha as its arbitrator and now oil ministry has proposed the name of Justice Khare, official sources said.
Sources said the ministry has sent Justice Khare's name to the Law Ministry for approval.
A third neutral adjudicator will be appointed by the two arbitrators.
The Oil Ministry had on May 2 written to RIL disallowing USD 1.005 billion out of the USD 5.756 billion investment it had made on developing Dhirubhai-1 and 3 (D1&D3) gas fields in the Bay of Bengal deepsea block KG-DWN-98/3 (KG-D6) as current output had led to under-utilisation of facilities that were built to handle 80 mmscmd of production.
In its 7-page notice, the ministry admonished RIL for the decline in production and said the company had violated the production sharing contract (PSC) and wilfully drilled fewer wells than what it had committed in its approved field development plan.
It also rejected company's argument that unexpected geology caused the decline in production and data established that drilling more wells would not boost output.
RIL on the other hand has refuted ministry charges saying there was no "obligation" in the contract to achieve certain levels of production and the government cannot levy penalty for not meeting indicative output levels.
In a 13-page letter, RIL's counsel wrote to the ministry on June 8 saying indicative output targets were given in USD 8.8 billion approved field development plan of 2006 "based on present day knowledge of the reservoir".
The Krishna Godavari basin reservoir has proved to be more difficult to exploit than previously predicted with high water and sand ingress in wells hampering production.
"There is no basis under the PSC to limit the contractor's recovery of its contract costs by reference to either the production levels achieved or the extent to which any facilities installed by the contractor may not be fully utilised," the letter said.
