$1.55 bn penalty on Reliance for diverting gas from ONGC reserve

SansadTV Bureau
File photo of a deep sea oil rig.

File photo of a deep sea oil rig.

Government has slapped a USD 1.55 billion demand on Reliance Industries and its partners BP and Niko for “unfairly enriching” by producing natural gas belonging to state-owned ONGC, a move that Mukesh Ambani firm said will challenge through arbitration.

The oil ministry on November 3 issued a notice to all the three partners seeking USD 1.47 billion for producing 338.332 million British thermal unit in seven years ended March 2016.

After deducting USD 71.71 million royalty paid on the gas produced and adding an interest at the rate of Libor plus 2 per cent totaling USD 149.86 million, a total demand of USD 1.55 billion was made on RIL, BP and Niko.

Originally, ONGC had sought suing RIL and seeking compensation for the gas that had migrated from its blocks KG-DWN-98/2 (KG-D5) and Godavari PML in the KG basin in the Bay of Bengal to neighbouring KG-DWN-98/3 (KG-D6) block of RIL and produced by the private company.

The government had appointed a one-man committee under retired Justice A P Shah to go into the issue. The panel in its report on August 29 felt that the government and not ONGC is entitled to compensation.

Subsequently, the ministry asked its upstream technical arm DGH to calculate the amount of compensation and a demand notice has now been slapped on RIL-BP-Niko.

“The committee has concluded that the contractor’s (RIL- BP-Niko) production of migrated gas and retention of ensuing benefits amounts to unjust enrichment, since the production sharing contract (PSC)… does not permit a contractor to produce and sell migrated gas,” the demand note said.

The ministry said it had accepted the Shah committee report and consequently “it has been decided by the government to claim restitution from the contractor of the block KG-DWN-98/3 for the unjust benefit received and unfairly retained by them”.

Reacting to the development, RIL said it “proposes to invoke the dispute resolution mechanism in the PSC and issue a Notice of Arbitration to the Government.”

“RIL remains convinced of being able to fully justify and vindicate its position that the Government’s claim is not sustainable,” a company statement said.

The company said it has worked within the boundaries of the block awarded to it and has complied with all applicable regulations and provisions of the PSC.

“The claim of the Government is based on misreading and misinterpretation of key elements of the PSC and is without precedent in the oil & gas industry, anywhere in the world,” it said.