ONGC-RIL dispute: RIL rejects Shah Panel, argues for arbitration

NEW DELHI: Reliance Industries(RIL) has challenged the jurisdiction of a panel examining Oil and Natural Gas Corp's (ONGC) allegations that it pumped out gas from the state-run firm's field, and has argued that the dispute should be resolved by arbitration.

It has also challenged the oil ministry's decision to intervene in the dispute by setting up a committee, headed by Justice AP Shah. At the panel's first meeting on December 31, RIL and its partner Niko stated they would not participate in its proceedings.

"RIL does not accept in this particular matter that the Government of India can appoint a 'committee', or the government can deal with any issues on the dispute or for the dispute by constituting a committee," RIL informed the panel in a letter.

RIL argued that disputes can only be resolved by arbitration, sources familiar with the matter said. Reliance's partner Niko Resources has also told the panel and the oil ministry that the government should not intervene in the dispute, although another partner BP Plc has been silent on this issue. But government officials said this option is available if there is a dispute between the oil ministry and the contractor but not if one company makes allegations against another. Officials also say that the Delhi High Court had asked the government to resolve the dispute, for which the oil ministry set up the panel.

ONGC had approached the court alleging that gas from its block was pumped out by Reliance, which had drilled wells very close to the common boundary of the blocks. Reliance Industries did not respond to ET's emailed query. In the past RIL said it had drilled wells inside its own block after obtaining appropriate approvals from authorities and that it couldn't be accused of wrongdoing. Reliance and the government are already involved in disputes over expenditure incurred by the company in developing the KG-D6 block as well as the pricing of natural gas.

The decision of Reliance, which operates the block, to not cooperate with the panel can hamper its working and further delay a resolution to the dispute, although, sources say, the panel will go ahead with its proceedings and submit the report in the three months given to it. Last month, the government had set up the panel to 'quantify the unfair enrichment, if any', made by Reliance and recommend ways to compensate ONGC and the government.

This follows a report by DeGolyer and MacNaughton (D&M), a US consultant, that established that the fields managed by the two companies shared the reservoir and gas from the state firm's field had migrated to the private operator's. The two firms had appointed D&M to look into the state firm's allegation that its gas had been illegally pumped out by RIL whose KG-D6 field off the eastern coast shared boundaries with ONGC's fields. State-run ONGC had also appealed to Delhi High Court, which directed the government to resolve the dispute within six months of receiving the D&M report.

This prompted the government to set up the single-member panel headed by Justice (retired) AP Shah, which is also mandated to fix responsibilities upon the government, regulator and companies for the dispute and suggest ways to prevent its recurrence. Reliance has claimed in the letter that "nothing in the D&M report points towards any wrongdoing by RIL. " Sources close to ONGC, however, say that D&M was looking at only technical issues, not the legality. Reliance said the dispute should be resolved through proper legal procedure, not an official committee.

"It is RIL's position that the committee has no power to adjudicate any matters or issues concerning the claims of ONGC and any such recommendation of the committee, if made, would in no manner be binding on RIL," the company has said. Sources familiar with the matter said it is the government, not the committee, which will take the final call. Both Reliance and ONGC have the option of approaching the court again if they are not satisfied with the solution offered by the government. By not cooperating with the panel, these sources said, Reliance was only impeding the government's effort at seeking a resolution. "Reliance is just losing out on the opportunity to share its side of the story and delaying the resolution," a source said.