Center The government has sought compensation of more than $30 billion from Reliance Industries and its partner company BP. Actually, Reliance Industries and BP were to produce natural gas from the KG-D6 gas field of Krishna-Godavari Basin, in which these companies could not succeed. Sources have informed PTI about this matter. According to sources, the government has presented this claim before a three-member arbitration tribunal. The hearing on this almost 14 year old case has been completed on 7th November. Sources said that the tribunal may give its decision in this matter next year.
Companies failed to achieve the set targets
Any party dissatisfied with the tribunal’s decision will have the option to challenge it in the Supreme Court. However, Reliance Industries and BP did not immediately comment on this matter. The government alleges that both partners developed excessively large facilities in the KG-D6 block, but failed to achieve the targets set for natural gas production. During the arbitration process, the government has sought monetary value of the gas that could not be produced as well as compensation for extra expenses incurred by the companies on fuel marketing and interest. The total value of all these claims has been estimated at more than $30 billion.
Government accused Reliance
The crux of this entire dispute is related to the Dhirubhai-1 and Dhirubhai-3 (D1 and D3) gas fields of the KG-D6 block. The government says that Reliance did not follow the approved investment plan, due to which the production capacity could not be fully utilized. Production in the D1 and D3 fields began in 2010, but within a year, gas production fell short of expectations and both fields were shut down in February 2020, well ahead of their expected life. In the initial field development plan, Reliance had set a target of producing 40 million standard cubic meters of gas per day with an investment of $2.47 billion. This was later revised in 2006 to double production with an investment of $8.18 billion and drilling of 31 wells by March 2011.
The company could dig only 22 wells out of 31
However, the company could dig only 22 wells and production could start from only 18 of them. The wells started closing prematurely due to infiltration of sand and water. Due to this, the estimate of gas reserves of this region was reduced from 10.03 lakh crore cubic feet to 3.10 lakh crore cubic feet. Holding Reliance-BP responsible for this situation, the government excluded the expenditure of $3.02 billion in the initial years from the cost recovery calculation. Reliance opposed this, saying that in the Production Sharing Contract (PSC), the government does not have the right to stop cost recovery on this basis.
The company had given arbitration notice in 2011
The company had given a notice of arbitration in this matter in 2011 but due to the dispute regarding the constitution of the tribunal, the proceedings remained stalled for several years. The arbitration hearing could begin only after the Supreme Court rejected the government’s petition in January 2023. Reliance had 60 percent stake in the KG-D6 block, BP 30 percent and Nico 10 percent. Later, with Niko’s exit, Reliance’s stake increased to 66.66 percent, while the remaining stake is with BP.
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