Home » Business & Economy » More govt vs Reliance arbitration? Shah report rules against RIL in KG-D6 row

More govt vs Reliance arbitration? Shah report rules against RIL in KG-D6 row

Neeraj Thakur | Updated on: 10 February 2017, 1:47 IST

There has been another setback for Mukesh Ambani's Reliance Industries Limited (RIL). The government-appointed AP Shah panel has upheld the Oil and Natural Gas Corporation's (ONGC) claims that RIL illegally extracted gas from the latter's reservoir located in the KG-D6 basin,

However, the panel has also said, as per Business Standard


that the ONGC, which had filed a complaint, has no right on the restitution, and no locus standi to bring a 'tortious claim against RIL for trespass/conversion, since it does not have any ownership rights or possessory interest in the natural gas'.

This means it is the Government of India which is eligible to claim 'restitution' from RIL for the unjust benefits that the latter received from the migration of gas from a gas block allocated to ONGC in the KG-D6 basin.

But who will decide what would be the penalty?

The Shah panel has resisted from pronouncing the penalty amount to be paid by RIL, in the absence of substantial data.

ONGC, in its complaint, had pegged the value of the migrated gas at Rs 11,000 crore, based on the value of natural gas in 2013 at $4.2 per unit.

But since the Shah panel has not taken ONGC's claims into cognisance, this would result in another round of discussions within the government, as to how much penalty should it claim.

The background

In 2013, ONGC claimed that RIL had deliberately drilled wells close to its block, and siphoned off a significant amount of gas.

When RIL paid no heed to the complaints, ONGC moved the Delhi High Court in May 2015.

RIL countered that ONGC's charges were baseless, since it was technically not possible to draw gas out of an adjoining field.

It also claimed that it had extracted the gas as per the Field Development Plan approved by the Directorate General of Hydrocarbons, or DGH.

To resolve the matter, the DGH, with the consent of both ONGC and RIL, appointed the US-based consultant DeGoyler and MacNaughton to survey the fields in question, and test the two companies' respective claims.

In its report, the consultant had confirmed the 'connectivity' between ONGC's G-4 block and RIL's KG-D6.

According to estimates, RIL has drawn 58.7 billion cubic metres of gas from the contentious wells, as of 31 March 2015. Of this, as much as 11.9 billion cubic metres may belong to ONGC.

Another arbitration?

Over the past few years, the KG-D6 basin area - once touted as the most prolific gas field in the country, has been in the news for negative reasons. A number of cases related to gas extraction from that field are already in arbitration, where the government and RIL are the contesting parties.

  • In 2011, a CAG report accused RIL of violating its production-sharing contract, and overestimating capital expenditure on developing KG-D6. When, based on this report, the government refused to let RIL recover its claimed expenditure of $2.3 billion by selling gas from the fields, the company sent it an arbitration notice on 23 November 2011. The matter is still pending.
  • In 2014, RIL filed another arbitration suit against the government for not raising the price of natural gas from 1 April 2014.

Once the government decides the penalty against RIL in the present case, one can expect another round of arbitration.

Edited by Shreyas Sharma

More in Catch

Govt fines RIL Rs 2500 crore for not meeting KG basin production targets

The face-off: Did Reliance 'steal' gas from the State? What can ONGC do now?

ONGC strikes huge gas hydrate reserves. Is India's energy future secure? Nope

First published: 1 September 2016, 10:34 IST
Neeraj Thakur @neerajthakur2

As a financial journalist, his interface with the two dominant 'isms'- Marxism and Capitalism- has made him realise that an ideal economic order of the world would lie somewhere between the two.

Senior Assistant Editor at Catch, Neeraj writes on everything related to business and the economy.

He has been associated with Businessworld, DNA and Business Standard in the past.

When not thinking about stories, he is busy playing with his pet dog, watching old Hindi movies or searching through the Vividh Bharti station on his Philips radio transistor.