Reliance Industries Ltd.

Reliance Industries (RIL), India’s biggest gas producer, has initiated an arbitration process against the Petroleum & Natural Gas Ministry owing to the latter's intention to restrict some of the expenditure that can be recouped by the company from the flagging KG-D6 gas fields. The company has slapped an arbitration notice on government against the 'violation' of the signed contract. In company’s view, the Production Sharing Contract (PSC) contains no provision which entitles the Government of India to restrict the costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities are utilized.

RIL has been into the eye of the storm owing to its inability to check the falling output from the gas fields in the Krishna Godavari Basin D6 block. Recently, RIL had roped in British firm BP as a partner to use its deep water expertise.  Last week, the Petroleum Secretary said that in the next three-four weeks, the Petroleum Ministry will decide on the action to be taken against Reliance Industries for its gas output falling below target from the gas fields.

While the PSC allows operator to recover 100 per cent of their exploration and production costs and does not link cost recovery to output, the Oil Ministry was to restrict this in proportion to the gas output which has dipped by over 30 per cent over the past one year. However, the company to finally resolve this cost recovery issue has begun arbitration proceedings against the GoI in order to seek an independent view on the issue of sharing the profits on production from the Krishna Godavari gas field.