The petroleum ministry, which had earlier sought time till January 31 to reply to the arbitration notice served upon it by Reliance Industries Ltd (RIL) in a dispute over estimate of costs related to RIL’s KG-D6 gas fields, has now asked the company to immediately withdraw its notice against the government’s proposed move.
In a letter dated January 25, the petroleum ministry has told Mukesh Ambani-led RIL that “as on date”, there was no cause for such action as no dispute has arisen to warrant arbitration.
“The company should withdraw the notice invoking arbitration forthwith,” ministry sources said.
RIL had served an arbitration notice on the ministry on November 24, 2011 after learning that the ministry was moving to restrict cost-recovery in the KG-D6 block. Flagging gas production had earlier led to utilisation of less than half of the 80 million cubic metres per day of infrastructure the company had built.
The ministry’s technical advisor, the Directorate General of Hydrocarbons (DGH) had advised disallowing $1.2 billion out of the $5.7 billion expenditure already made by RIL on the grounds that the company had drilled and completed only 18 wells against the agreed 31 wells in the block, resulting in lower gas output.
Gas production averaged 48.1 mmcmd against the targetted 53.4 mmcmd in 2010-11 and 38.6 mmcmd up to October 31, 2011, compared to the target of 61.9 mmcmd, in 2011-12. Production of 80 mmcmd was envisaged in 2012-13.
On its part, RIL said that it had not drilled the committed wells as the reservoir has not behaved as previously predicted and output dipped due to a fall in pressure and water and sand ingress in wells.
The Press Trust of India (PTI) quoted sources as saying that even before the ministry could write to RIL on restricting cost-recovery, the company slapped the arbitration notice.
The ministry had referred the arbitration notice to the law ministry, which was of the opinion that as on date, there was no cause of action for RIL to raise a dispute (as defined in Article 33 of the Production Sharing Contract) entitling the company to refer it for arbitration.
Also, RIL did not wait for the mandatory 90 days from the date on which the dispute arose, the ministry said.