In a move that seeks to end a prolonged production dispute at KG D6, India’s largest gas field in Andhra Pradesh, arbitration proceedings between Mukesh Ambani-led Reliance Industries Ltd (RIL) and the government will begin shortly.
SP Bharucha, former Chief Justice of India has been appointed by RIL, while the government has named former chief justice VN Khare as its arbitrator. The Supreme Court has appointed retired Australian judge Michael Hudson McHugh as the chair of the arbitration panel.
Reliance, as the contractor of the KG-D6 block, had invoked arbitration proceedings against the government for disallowing the development costs.
Denying investment recoveries to RIL following a steep fall in output from its KG-D6 gas fields and failing to meet production targets since 2010, the government has imposed a cumulative penalty of $2.376 billion or Rs. 14,256 crore for the period beginning April 1, 2010 to till date.
RIL spokesperson refused comments saying the matter is already under arbitration.
Maintaining that it is entitled to seek investment recoveries from the government under the production sharing contract (PSC) for the KG-D6 block, RIL, in November 2011, first served an arbitration notice to the previous UPA government when Jaipal Reddy was the oil minister. RIL sought resolution to a dispute in which the government had disallowed about $1.8 billion of investment in the KG-D6 block, citing a steep fall in gas production from the block.
The ministry’s contention under Jaipal Reddy was that when RIL had promised to produce 80 million standard cubic meters of gas per day, why should it be allowed to recover its costs when production of gas from KG-D6 was only 12-13 mmscmd.
The second arbitration was initiated by RIL in May after the UPA government decided to delay the price hike from the existing $4.2 a unit to over $8 a unit.
The new price was in line with a formula suggested by former RBI governor C Rangarajan and head of PM’s economic advisory council, in June 2013.