Reliance Industries withdraws arbitration on KG D6 for taking away block area

In a major change of stand, Reliance Industries Limited (RIL) has withdrawn an arbitration slapped on January 14, 2015 against the petroleum ministry seeking damages for 81% contract area being taken away in its deepwater block KG-D6. The private explorer had said that the area being taken away includes five discoveries estimated to hold nearly a trillion cubic feet of natural gas.

A senior official at petroleum ministry confirmed to FE that RIL has written to the government and ‘process of reconciliation’ is underway.

On May 26, RIL in a three-page letter to the petroleum ministry wrote about its decision to withdraw the arbitration. Industry watchers view this move of Ambani firm as ‘constructive’ and step towards going ahead with further investments in the prolific KG-D6 block to take out more hydrocarbon.

Sources told FE that the decision to withdraw the arbitration has been taken at the highest level of RIL. The company wants to take advantage of the ease of doing business scenario being rolled out by the Prime Minister Narendra Modi-government and concentrate on exploration and production rather than being engaged in legal tussle. This would also help RIL regain trust with investors as well as government.

On April 12, FE reported that the Mukesh Ambani-controlled RIL and its UK-based partner BP could revive investments to produce more hydrocarbon from their KG-D6 and NEC-25 blocks. The investments could be to the tune of about $6 billion.

In the arbitration notice, now withdrawn, RIL had contested the government order of October 2013 asking it to relinquish an area of 6,496.88 sq km out of the total contract area of 7,645 sq km in the KG-D6 block. Previously, RIL had slapped two arbitration notices relating to the KG Basin — the first in November 2011 (contesting disallowing cost recovery) and then in May 2014 (for not implementing new gas price). These are still active and not withdrawn.

While sending out the arbitration notice, RIL had said that it spent more than $1.1 billion during the exploration period in prospecting for hydrocarbons in the block, including in the relinquished area. It said that the government order with respect to second-phase satellite fields was based on the erroneous premise that the contractor has failed to submit a development plan for these fields. In fact, RIL had submitted the field development plan for all nine satellite discoveries.

Earlier, Parliament’s Public Accounts Committee had pulled up the petroleum ministry asking why its arm Directorate General of Hydrocarbons (DGH) that asked RIL to relinquish the area in May 2004 took a U-turn in 2005 by agreeing to treat the entire area as discovery area.