Govt may ask RIL to withdraw its latest arbitration notice on KG-D6

The petroleum ministry is planning to ask Reliance Industries (RIL) to withdraw its latest notice of arbitration, served on January 14, challenging the ministry’s decision to take away 81 per cent of the area of the Andhra offshore KG-D6 block.

The ministry is likely to take the stand that its October 2013 order of relinquishment is in line with provisions of the Production Sharing Contract (PSC), and there is no merit in the notice of arbitration, according to sources.

The ministry had issued the relinquishment order, asking RIL and its partners, BP and Niko Resources, to give up 6,198.88 sq km of a total 7,645 sq km in KG-D6 block, as the timeline for production had expired. The companies were allowed to retain only the portions where discoveries had been recognised by the Directorate General of Hydrocarbons (DGH).

RIL, in response, has demanded the dispute be taken to arbitration, the relinquishment order be withdrawn and compensation be paid for the alleged breach of contract by the government. RIL has argued the time period for approving these discoveries never expired, as the block management committee had agreed to a phased approach for their development.

The company is understood to have said the government had issued the order based on the ‘erroneous premise’ the contractor (RIL) had failed to submit a development plan for these fields. It has argued that the contractor had in fact presented the field development plan for all nine satellite discoveries (including the Second Phase Satellite Fields) and it had never withdrawn the FDP.

RIL is already contesting the government’s decision to disallow around $1 billion on grounds of under-production of gas and under-utilisation of facilities in KG-D6; the government deferring gas pricing guidelines on KG-D6; and the government’s opposition to RIL deducting more development expenses than the PSC limit in the Panna, Mukta and Tapti fields.

Reliance Industries Limited (RIL)