No arbitration over RIL gas price: Centre

Supreme Court to hear both parties on May 1

The government on Monday filed an affidavit in the Supreme Court, stating its differences with Reliance Industries over pricing of natural gas from the company’s KG-D6 block were not open to arbitration.

Government guidelines issued in October 2014 ruled out arbitration over pricing of natural gas produced in India, the affidavit stated, and, therefore, Reliance Industries’ plea for appointing an umpire for the arbitrators’ panel in this dispute be rejected.

A Bench headed by Ranjan Gogoi set the date of hearing both parties on May 1 and asked them to file their statements before that. The case will be heard in detail then.

Another set of arbitration cases are slated for hearing on Wednesday by a Bench headed by Dipak Misra. In the case related to the Panna-Mukta-Tapti oil and gas fields, the government has sought a change in the foreign arbitrator appointed by Reliance Industries, alleging he is not competent to hold the post.

Reliance Industries and its partners are pursuing four arbitration cases with the government, of which two are related to the KG-D6 block over cost recovery and market pricing.

 

Reliance Industries had sought arbitration in May 2012 after the government disallowed about $1 billion in costs, as the gas flow tapered. The company also sought arbitration over deferred gas pricing in May 2014.

In this case, GS Singhvi, a former judge of the Supreme Court, is arbitrating for the government and David Steel is representing Reliance Industries.

In Monday’s affidavit, the government alleged Reliance Industries had suppressed facts necessary for arbitration. The government iterated natural resources like gas belonged to the people, it held these as a trustee, and these could not be distributed for private profit.

The government had, under guidance from the Supreme Court, laid down guidelines for setting the price of locally produced gas in order to serve the interests of the nation, the affidavit said. The oil ministry must comply with its duty to set guidelines and its actions could not be subjected to arbitration, the government asserted.

Locally produced natural gas has been priced $5.17 per million British thermal units (mBtu) on net calorific value from April 1 till September 30, 2015, a 7.7 per cent cut from the earlier price of $5.61. On gross calorific value, the price is seen declining from the existing $5.05 to $4.66.

According to a mechanism approved by the Cabinet in October, the price of locally produced natural gas is to be revised every six months using the weighted average prices in the gas-surplus economies of US/Mexico, Canada and Russia.

The price was raised from $4.2 per mBtu to $5.61 effective November 1, 2014, based on the recommendations of a committee of secretaries.

DISCORD OVER PRICING

• An EGoM under the UPA regime had set the price at $4.2/mBtu for 5 years ended March 2014
   
• In Jan 2013, new pricing norms were notified, based on a formula that would have doubled the rate to $8.4/mBtu
   
• The price was to be effective April 2014. However, this was delayed due to the general elections
   
• In June 2014, the govt deferred a decision for 3 months, followed by a deferment till Sept
   
• In Oct 2014, a price of $5.6/mBtu was announced; the govt said RIL would be paid at $4.2/mBtu till shortfall from D1, D3 was made good
   
• In May 2014, RIL and partners served a pre-arbitration notice on the govt, alleging failure to implement the price rise from April had hit sanctioning of $4 bn of investment. This was followed by a formal notice of arbitration on June 17