Reliance Industries, Bp Withdraw Gas Price Arbitration Against Government

Reliance Industries, Bp Withdraw Gas Price Arbitration Against Government

Reliance Industries and partner BP have withdrawn the gas price-related arbitration against the government, paving the way for the companies to claim the premium price for output from deep-sea fields in which they plan to invest Rs 40,000 crore.

This is the second case of arbitration that RIL and BP have withdrawn, sending another strong signal that the relationship between the oil ministry and RIL, which had become acrimonious during the UPA regime, has normalised enough for the partners to turn their attention from litigation to investment.

Last week, RIL chairman Mukesh Ambani and BP Plc CEO Bob Dudley signalled confidence in the policy environment and the regulatory regime by announcing their plan to invest $6 billion in new fields discovered long back in the deep-sea KG Basin block.

“Yes. The gas price arbitration has already been withdrawn,” BP said in an emailed response to ET’s query. RIL did not respond but sources with direct knowledge of the matter told ET that the company had written last week to the government that it no more wished to pursue the gas-price arbitration.

The communication came around the time Ambani and Dudley announced the new investment in the gas-rich block to produce 30-35 million cubic metres a day in three to five years. The output from these fields can fetch premium prices only if the operators have no litigation against the government, a key condition that has now been met with the withdrawal of gas price-related arbitration.

Last year, the government announced a new policy that allows gas from fields in difficult terrains like deep-sea regions to be sold at almost double the price allowed for normal fields.

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Reliance and BP are developing new fields at a time when the cost of oilfield equipment and services have crashed while their output will begin around the time analysts expect the global gas glut to end. Equipment prices have crashed due to low demand because the fall of crude from about $115 to below $50 have prompted oil firms to stop exploration and development in deep-sea regions, which need a higher price to justify the investment.

Three years ago, RIL, which owns 60% participating interest in the KG block with BP owning 30%, invoked an arbitration following the government’s refusal to implement a price formula for domestic gas that could have doubled the prevailing price. The government challenged Reliance’s power to invoke arbitration in the Supreme Court, arguing that the government alone enjoyed discretion on which price policy it should implement and a company can’t force it to apply a certain policy. The case has dragged on for three years with no consequence as yet.

Last year, Reliance Industries, which is engaged in a string of arbitration cases against the government, dropped another arbitration in which it had contested the government’s 2013 order to relinquish about 80% of the KG-D6 area. There are four more arbitration cases between RIL and the government.

These are over disallowance of cost-recovery in its KG-D6 block, amount the company must pay for unfinished minimum work programme and illegal production of gas from ONGC’s fields in the KG basin. Another dispute related to Panna-Mukta, Tapti fields has received arbitration award but the parties are still seeking more clarity on it.

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