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Government to move High Court against Reliance arbitration award, says Pradhan

Oil Minister Dharmendra Pradhan on Friday said the government will file an appeal in High Court against a ruling by an international tribunal which rejected its USD 1.55 billion claims against Reliance Industries for allegedly siphoning gas from fields operated by state-owned ONGC

Reported by: PTI, New Delhi [ Updated: August 03, 2018 17:35 IST ]
Dharmendra Pradhan
Image Source : PTI

Dharmendra Pradhan

Oil Minister Dharmendra Pradhan on Friday said the government will file an appeal in High Court against a ruling by an international tribunal which rejected its USD 1.55 billion claims against Reliance Industries for allegedly siphoning gas from fields operated by state-owned ONGC.

A three-member international arbitration tribunal, by a majority vote last week, held that Reliance could contractually produce and sell any gas that might have migrated from adjoining fields of state-owned Oil and Natural Gas Corp (ONGC) into its area and that it was not obligated to seek prior permission of the government for doing so.

The government will certainly file an appeal against the arbitration award in the higher forum," Pradhan said here.

With one member dissenting, the arbitration panel had held that the production sharing contract for eastern offshore KG-D6 fields "does not prohibit but permits" Reliance "to produce and sell gas which migrated into the sub-sea reservoir lying within (its) Contract Area from a source outside the Contract Area".

And so "there is no question of 'unjust enrichment'," it held. Reliance "has not been and will not be unjustly enriched by any production of migrated gas as a result of Petroleum Operations conducted within its Contract Area".

Asked what will be the forum for appeal, Pradhan said, "it will be in the High Court".

He said the government had made a claim on Reliance and its partners based on the recommendation of the Justice AP Shah Committee that quantified the natural gas that had migrated to KG-D6 from neighboring blocks of ONGC. "Certainly, we will file an appeal," he said.

In the 107-page order, the arbitration tribunal headed by Singapore-based arbitrator Lawrence G S Boo stated that although Reliance had always accepted that there could be channel continuity between its KG-D6 block and ONGC's adjoining KG-D5 and IG block, its conduct is consistent with its position that 'reservoir connectivity' has not been proven.

Bernard Eder, a former UK High court judge nominated by Reliance, was the other judge who concurred with Boo. GS Singhvi, a former Supreme Court judge and the government nominee on the panel, wrote a long dissent note.

"The Claimant (Reliance) requires no further express permission to produce and sell any migrated gas that could have come into (its) Contract Area," the majority judgment held.

In his dissent note, Singhvi said that the PSC prohibits the Reliance and its partners from producing and selling gas which migrated into their sub-sea reservoir from Contract Area of ONGC.

He held that Reliance "unjustly enriched itself by the sale of migrated gas, which did not belong to it and, therefore, it is bound to restore those benefits to the Government".

The panel also awarded USD 8.3 million compensation to the three partners.

Reliance is the operator of the KG-D6 block with 60 per cent interest, while BP plc of UK holds 30 per cent and Niko Resources of Canada the remaining 10 per cent.

In his dissent note, Singhvi said Reliance was required to obtain explicit permission to produce migrated gas.

"It is crystal clear that the claimant (Reliance) does not have any rights to the gas which has migrated from ONGC's blocks," he wrote. "There can be no doubt that the retention of the benefit of migrated gas would be 'against the fundamental principles of justice or equity and good conscience' thereby falling squarely within the ambit of the doctrine of unjust enrichment".

Pradhan's ministry had on November 4, 2016, slapped a demand notice on Reliance-BP-Niko combine for producing in seven years ending March 31, 2016, about 338.332 million British thermal units of gas that had seeped or migrated from ONGC's blocks into their adjoining KG-D6 in the Bay of Bengal.

Reliance on November 11, 2016, slapped an arbitration notice disputing the claim.

The government's compensation claim flowed from the report of the Justice (retd) A P Shah Committee.
The Shah panel, in its August 28, 2016, report, concluded that there has been "unjust enrichment" to the contractor of the block KG-DWN-98/3 (KG-D6) due to the production of the migrated gas from ONGC's blocks KG-DWN-98/2 and Godavari PML.

It relied on a report produced by petroleum industry consultant DeGolyer and MacNaughton which concluded that gas had migrated from ONGC-controlled parts of the sea floor and the geological formations beneath it into areas controlled by the private companies. But Reliance had at that time stated that the methods were flawed.

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