BP and Niko Resources told to join arbitration proceedings over KG-D6 contract

The Petroleum and Natural Gas Ministry has sought legal opinion on whether Reliance Industries Limited’s (RIL) partners, BP and Canada-based Niko Resources, could be given the new gas price effective from April 1 since they are not part of the ongoing arbitration proceedings between RIL and the government.

Officials said the Petroleum Ministry had approached the Law Ministry seeking a view on not only how to go about the price hike issue for the two entities along with RIL, but also the exact calculation of the bank guarantee to be sought from RIL for the purported shortfall in production in the KG basin till it is independently verified that the drop was due to geological reasons and not deliberate.

BP has claimed, in a statement, that RIL and Niko were working together with it as contractors and producers of gas from the D1 and D3 fields under the KG-D6 block Production Sharing Contract. “BP, RIL and Niko are working closely with the government to implement the gas pricing guidelines 2014 in accordance with this decision of the government. According to the recently notified Domestic Gas Pricing Guidelines, 2014, the pricing formula applies to all gas produced in India effective April 1, 2014. As to the D1 and D3 gas discoveries, these guidelines become applicable subject to the submission of a bank guarantee in a manner to be notified separately.”

However, it is learnt that the view within the Petroleum Ministry is that the Cabinet had given its nod to RIL for the price hike subject to its furnishing a bank guarantee and both BP and Niko Resources would have to join the arbitration proceedings to stake their claim for the new gas price. “We have already conveyed this to the two partners and told them that they have no alternative but to join the arbitration proceedings. We are eagerly awaiting the legal opinion before proceeding further on this issue. We are also awaiting a word on the bank guarantee issue and how it has to be calculated,” the official said.

RIL had dragged the ministry to arbitration in 2012, saying the contract did not provide for the levy of a $1.8-billion penalty for output not conforming with the projected production profile.