The Petroleum and Natural Gas Ministry has asserted that the arbitration dispute with Reliance Industries Limited (RIL) pertaining to the cost recovery issue in the KG-D6 field will be taken to the logical conclusion.

“The arbitration proceedings in this case will go on. It will be taken up from where the then Petroleum and Natural Gas Minister, Jaipal Reddy, had left. We are not going to stall it or interfere with it,” Petroleum and Natural Gas Minister Verappa Moily told The Hindu in reply to a question on the issue.

The government had, in May last year, disallowed $1.5 billion cost recovery expense of RIL for the KG-D6 gas fields for not implementing the approved field development plan and not meeting the production targets. Subsequently, RIL had slapped arbitration proceedings against the government on the issue contesting that production sharing contract (PSC) does not provide for such a penalty in case of shortfall in production. Under the leadership of Mr. Reddy, the Petroleum Ministry had appointed former Chief Justice of India, Justice V. N. Khare, as the government’s arbitrator while RIL had appointed former Chief Justice of India, Justice S. P. Bharucha, to contest its case.

However, the government is yet to appoint a third neutral arbitrator. As a consequence, the proceedings have been hanging fire. “Both the arbitrators have not yet selected the Presiding Arbitrator. The arbitration proceedings are yet to commence,” the government had stated recently in response to allegations of wrong doing on the issue by CPI MP Gurudas Dasgupta.

The Ministry had blamed the failure of RIL to drill the required quota of oil wells for the fall in production which had led to a large chunk of production facilities lying unused or under-utilised.Mr. Dasgupta had, on June 18, alleged that Mr. Moily was trying to favour RIL by sabotaging the arbitration as well as deciding not to levy any further penalty despite the drastic fall in production leading a larger under-utilisation of facilities. SOriginally, RIL had facilities to handle 80 million metric standard cubic metres a day (mmscmd) of gas production, but the fields last year produced just about 41 mmscmd last year and at present productions stand at 14 mmscmd.

The company had envisaged a gas output of 80 mmscmd by 2012 with an investment of $8.8 billion. However, the output was about half of the target and the company had invested only $5.8 billion.

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