Reliance Industries and its partners BP plc of UK and Canada’s Niko Resources have slapped an arbitration notice on the government seeking implementation of a delayed gas price rise.
The trio had on May 9 issued a “pre-arbitration notice” saying failure to implement the increase from due date of April 1 is preventing them from sanctioning investments of almost $4 billion this year.
This arbitration notice wasn’t complete as the partners did not name their arbitrator as required for dispute resolution under the Production Sharing Contract (PSC), sources privy to the development said.
RIL-BP-Niko on June 17 served a formal arbitration notice naming London-based Sir David Steel as its arbitrator.
The three firms want the government to honour its commitment and implement revised natural gas prices upon expiry of the $4.2 per million British thermal unit rate for their eastern offshore KG-D6 gas fields on March 31, 2014.
The previous UPA government had on January 10 notified a new domestic gas pricing formula that would have doubled the gas rates from April 1 but before it would announce the new price general elections were declared.
The Election Commission asked the UPA to leave the decision to the new government and revision of rates was put off to July 1. The new government last month decided to defer a decision by a further three months pending wider consultations on the formula.
While the government had not entertained the May 9 notice, it now has 30 days i.e. up to July 17, to reply to the Notice of Arbitration (NoA), sources said.
The Oil Ministry has referred the NoA to the Law Ministry for opinion, they said adding the options before it are to either deny existence of a dispute or nominate an arbitrator to represent it.
When contacted, an RIL spokesperson said, “RIL notified its arbitrator, Sir David Streel on June 17, 2014. Under the PSC, Government has 30 days from the date of our notification of our appointment to appoint its arbitrator.”
In November 2011, RIL had started its first arbitration proceedings against the government, seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales.
The government had disallowed as much as $1.8 billion of its investment as KG-D6 output lagged targets. Production from main fields in the block was almost one-tenth of 80 million standard cubic meters per day-target.
RIL and its partners say they are entitled to recover all costs of the block in the Bay of Bengal under their production-sharing contract with the government.
They have named former Chief Justice of India S.P. Bharucha as their arbitrator for the case while the government has chosen ex-CJI V.N. Khare.
The Supreme Court in April appointed Australia’s Justice (retd) Michael Hudson McHugh to chair that arbitration.