The Petroleum and Natural Gas Ministry is understood to have asked Reliance Industries Limited (RIL) to appoint a new arbitrator for the KG-D6 block dispute with the Ministry, after a disclosure made by current arbitrator Justice D.M. Dharmadhikari indicated a conflict of interest.
Highly placed sources in the Petroleum and Natural Gas Ministry said the decision was taken after detailed discussions with the Directorate General of Hydrocarbons (DGH). Following the discussions, the Petroleum Ministry and its legal team were of the view that it would not be tenable for Mr. Dharmadhikari to continue in the present position as an arbitrator for RIL after the disclosure made by him.
In his disclosure statement to the DGH, Justice Dharmadhikari stated: “On perusal of my personal record, I have discovered that in the year 1988 and 1992, I held 450 shares of Rs. 10 each of Reliance Petrochemicals Ltd. In the year 1992, 40 shares of Rs. 10 were issued against my holding of equity shares in RPL on merger with RIL. I consider it to be my legal obligation to disclose this fact to the parties to the present arbitration in accordance with Section 12 of the Arbitration and Conciliation Act 1956.”
Section 12 of the Arbitration and Conciliation Act states that: “an arbitrator may be changed only if circumstances exist that give rise to justifiable doubts as to his independence or impartiality.”
The government had informed the contractors (RIL and NIKO) last May that they were not entitled to recovery of costs incurred for the excess capacity created in block KG-DWN-98/3 and such recovery of costs had to be limited only to the extent of the infrastructure used by them for the production of gas, and accordingly, the costs were inadmissible.
However, RIL initiated arbitration proceedings against the Petroleum Ministry’s move after gas production from there registered a massive decline. The arbitration said the production sharing contract contained no provisions that entitled ‘the government to restrict the costs recovered by the company’. Besides, the investment made in the KG-D6 production facilities had been only partly recovered and the return on investment so far is less than the cost of the capital, it had stated.