RIL-ONGC gas dispute: Shah panel starts work in muddied waters

Setting up a committee under a former judge to resolve the dispute between Oil and Natural Gas Corporation (ONGC) and Reliance Industries Ltd (RIL) may not be the best way of tackling the issue but probably it is the only transparent way left for the government. Experts familiar with government functioning are not in agreement over the scope of the committee's power.

The panel is facing its first hitch with one of the parties, RIL, deciding not to cooperate with it. Legally, the government or the AP Shah committee cannot bind RIL, or for that matter any former or retired government official, to provide evidence or accept its recommendations unless such a decision has the backing of a court verdict, says Yogendra Narain, a former secretary in the government of India who has also been secretary-general of the Rajya Sabha.
 

Nonetheless, RIL's assertion that it prefers arbitration does not appear to hold ground either, with RS Sharma, former chairman and managing director, ONGC, saying only parties to a contract can seek arbitration. "In this case, RIL is in contract with the government and not ONGC, so why should ONGC be in arbitration with it?" he adds.

The RIL spokesperson did not respond to phone calls on the issue. When contacted, Shah declined to say anything on the committee's formation or proceedings. "This is an independent committee. Propriety demands I should not speak to media," he said over the phone.

RIL has reportedly challenged the jurisdiction of the committee arguing that the dispute should be resolved by arbitration. The company is looking for a resolution within the terms of production sharing contract signed between the three partners and the Union government. The panel had its first meeting on December 31 and has to submit a report by March 15, 2016.

The ministry of petroleum and natural gas appointed a one-man committee under Shah through an office memorandum issued on December 15, 2015. Its four-point terms of reference include considering "the acts of omission and commission, if any, on the part of stakeholders, including RIL, ONGC, DGH (Directorate General of Hydrocarbons) and the government, and give recommendations on it". The commission has been authorised to formulate its own procedure and call any record and examine any witness it sees fit.

Narain maintains that without statutory backing such a committee's summons or procedures are binding only on serving officers and not on private companies or individuals. "Even retired officials are private citizens so they cannot be summoned. Such a right is usually exercised by parliamentary committees only," he says.

Though Shah, chairman of the 20th Law Commission and former chief justice of India, does not have any geological expert on the panel, the committee is expected "to quantify the unfair enrichment, if any, to the contractors of the adjacent block KG-DWN-98/3 and measures to prevent future unfair enrichment to these contractors on account of gas migration". RIL is the operator of KG-DWN-98/3, popularly known as KG-D6. BP Exploration and Niko Resources are the two partners in the block, which lies adjacent to ONGC's two blocks off the coast of Kakinada in Andhra Pradesh.

The committee's first term of reference asks it to consider in depth the report submitted by the Dallas-based DeGoyler & MacNaughton on November 30, 2015, and recommend action to be taken by the government considering "legal, financial and contractual provisions".

Sharma, however, supports the constitution of the committee. "It is not require to go into geological technicalities since the terms of reference constitute issues of jurisprudence and processes. There is no issue of analysing the D&M report, but the committee will use it to arrive at a decision. There is no case for revisiting the report," he says. The committee, he points out, was appointed by the government after the consent of both parties.

On being asked why the committee was constituted because the government could have given the job to the DGH, Petroleum Minister Dharmendra Pradhan had earlier told Business Standard this was required because the directorate, too, was a party to the dispute. Sharma supports the move, saying transparency requires an independent person because the government is also the promoter of ONGC.

D&M is understood to have put a question mark on future production from the five ONGC discoveries. RIL, which could be in a spot if the government decides to hold it responsible for migration of natural gas to its production facility from the ONGC controlled acreage, is looking for a solution within the production sharing contract with no impact on its revenue.

D&M has said only 385 billion cubic feet (bcf) natural gas can now be produced from ONGC's area because the natural gas has migrated to RIL's contract area. The lower volume, too, is possible only from RIL production facilities over the life of KG-D6 field development because the pressure built-up crucial to production has fallen significantly, claims a person privy to the report.

ONGC had initially estimated 1.7 trillion cubic feet (tcf) in-place gas reserves in six discoveries in its two blocks that sit next to RIL's KG-D6 in the Krishna Godavari basin. The report has established that natural gas from five of these discoveries flowed into the RIL area. While 317 bcf has already been produced, a total of 393 bcf has migrated to the D1 and D3 reservoirs of RIL. Further migration could take the figure to 449 bcf over the life of block.

For RIL's KG-D6 block, the consultant has downgraded the total recoverable gas reserves from 2.9 tcf to 2.4 tcf.

The company had originally projected 10 tcf natural gas in the block but in a revised plan submitted in 2012 it brought down the reserves to 2.9 tcf.

The Delhi High Court had in September 2015 disposed of ONGC's petition where the state-run company had alleged 18 billion cubic meter (bcm) of natural gas may have migrated from its KG-D5 and Godavari PML fields to RIL's KG-D6 block.

The court had asked the parties to wait for D&M's report and allowed ONGC to approach it again if the government did not act within six months of the submission of the report.