The government has ordered Reliance Industries (RIL), Shell and ONGC to pay a combined $3 billion in penalty following an arbitration award in the Panna Mukta Tapti (PMT) oil field dispute that went in favour of the government, according to people familiar with the matter. RIL and Shell have appealed the arbitration award in a UK court.
The oil ministry sent out a demand notice last month to Reliance and Shell, which own 30% each in the PMT fields off the Mumbai coast, as well as to ONGC that owns the balance 40% participating interest. The three companies have to pay the penalty proportionate to their stake in the fields.
The arbitration panel had upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33%, and not the 50% rate that existed earlier.
This will significantly increase the government’s share of profit petroleum. The tribunal also upheld the government’s position that marketing margin should be included in the price of gas, which would also increase its share of profit petroleum as well as a royalty payment.
RIL, Shell and the oil ministry declined to comment.
The dispute over state share of profit petroleum and royalty from the PMT fields raged for many years. Late last year, a London-based tribunal of arbitrators issued a final partial award (FPA), upholding key contentions of the government.
ONGC hasn’t been part of the arbitration or the current appeal. Shell became the operator of the field last year after taking over BG (formerly British Gas), the original operator of the field.
Based on the outcome of the arbitration, the Directorate General of Hydrocarbons (DGH), an arm of the Oil Ministry, computed the money companies owe to the government and ordered them to pay.
A decision by the UK court on the appeal by RIL and Shell will determine the future course of action.
The PMT arbitration case is one of the many disputes Reliance is fighting with the government. Reliance and partner BP just last month withdrew the gas price-related arbitration against the government.
Reliance also withdrew another arbitration last year related to a government order to relinquish 80% of KG-D6 block that the company operates.
Four arbitration cases are underway and these relate to recovery of cost of developing fields, penalty for unfinished committed minimum work programme in KG-D6 and the government demand for compensation for producing gas from ONGC’s fields.
While unveiling a Rs 40,000 ccrore planto develop new fields in the KG Basin last month, RIL chairman Mukesh Ambani said he expected a fair outcome in arbitration cases.
Source Link – ET Energy World