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Oil Min’s $3 bn notice ‘premature’, RIL-Shell and ONGC to counter penalty demand

The consortium has refused to pay a collective demand of $3 billion by the Oil ministry as shortfall in its share of profit till a tribunal in the UK gives its final award in an ongoing arbitration case

Written by: India TV Business Desk, New Delhi [ Published on: July 19, 2017 13:21 IST ]
Representative image. RIL termed the government's demand
Representative image. RIL termed the government's demand notice as premature

A consortium of Reliance Industries Ltd-Shell India and the Oil and Natural Gas Corp. (ONGC), producing oil and gas from the Panna-Mukta-Tapti fields, has refused to pay a collective demand of $3 billion by the Oil ministry as shortfall in its share of profit till a tribunal in the UK gives its final award in an ongoing arbitration case, including the method of quantifying the alleged shortfall. The government had in May sent a notice over the demand, contending that the companies should have included the marketing margin they charge from consumers in the profit petroleum to be shared with it.

A Mint report cited an emailed response from RIL terming the government’s demand notice as ‘premature’. It said the firm, as a part contractor in the field, has been notified by the government of the “purported share of the government’s profit petroleum and royalty alleged to be payable by the contractor pursuant to the government’s interpretation of the arbitration tribunal’s final partial award of 12 October 2016”.

It said the quantification of liability, if any, of the parties arising out of the partial award will have to be determined by the tribunal after the parties have made their submissions. The tribunal is yet to schedule the timeline for the quantification, the firm said, adding that certain outstanding issues will have to be resolved before the quantification process can begin, the Mint report added.

Reliance and Shell India have a 30 per cent stake each in the field, while ONGC holds the remaining 40 per cent. “Reliance has already responded to the government’s demand notice appropriately. Further, Reliance has already challenged the partial award before the English courts and the matters are, as such, sub judice,” the Mint report quoted the firm as saying in a statement.

RIL and British Gas Exploration and Production India Ltd (BGEPIL) – which held the stake in the field before it was taken over by Shell – had filed for arbitration in a UK court in December 2010, in the wake of differences with the government over issues such as cost recovery and profit-sharing. ONGC was not party to the case. There were two issues of contention here.

First, the government claimed that that the companies should have included the marketing margin they charge from consumers in the profit petroleum to be shared with it.  It also claims that only the actual taxes paid by the contractors can be allowed as a cost and not any notional tax rate mentioned in the contract signed in 1994. Profit petroleum is the quantum of profits that the developer of a field and the government share after excluding all costs.

The two private companies have also moved a court in the UK against the tribunal’s partial award favouring the government of India.

“Any view on the outcome of this arbitration is premature at this stage as further proceedings, including quantification, are still to be carried out,” Shell India said.

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