RIL Moves SC on KG-D6 Arbitration

Seeks appointment of arbitrator on behalf of oilmin to settle dispute

Reliance Industries has sought the Supreme Court's intervention to help start arbitration with the oil ministry over recovering its investment in the D6 block from gas sales, ruling out amicable resolution of its dispute with the government after months of discussions. It has complained to the court that the oil ministry was not approving its budgets and putting undue pressure to drill more wells, although geological data suggests this may be counterproductive. 

The move highlights the widening gulf between the oil ministry and the company, which has historically enjoyed a close relationship with the government. Since last year, RIL has been frustrated by long delays in official approvals and faced difficulties in meeting top officials. The company also felt the national auditor had ignored many of its arguments in preparing an audit report that accused the oil ministry of being lenient in enforcing contracts with private firms. "The disputes have reached a point that the (government) has refused to approve the revised work program and budgets… until such time as the petitioners agree, as it were, to a schedule to drill, complete and connect more development wells… The petitioners have repeatedly contended that the data now available establishes that the drilling of more wells will not improve the performance – on the contrary it may prove deleterious to the same," RIL and partner Niko said in their petition. Reliance Rules Out Amicable Settlement 

In the absence of approval for its work programme and budgets, its finances, particularly after April 1, 2012, "would be shrouded in doubt and uncertainty", it said in the petition. 

RIL said there was no possibility to amicably resolve the dispute between the two parties "since the Respondent denies the existence of any dispute whatsoever". 

RIL had issued an arbitration notice to the government on November 23 and appointed its arbitrator, a retired chief justice of the Supreme Court. Under the arbitration process, the government also has to appoint an arbitrator, but the oil ministry initially sought more time to respond, and subsequently asked the company to withdraw its arbitration notice. RIL's contract with the government says if one party fails to appoint an arbitrator in 30 days, the other party can request the SC to appoint an arbitrator. 

The company initiated arbitration following media reports that the government would not allow it to recover all its development costs in the D6 field. 

The oil ministry said since it had not taken such action, there was no need for arbitration. RIL says the oil ministry has refused to approve the revised work programme and budgets for 2010-11 and 2011-12. 

Gas output from D6 has dropped significantly from about 61.8 million standard cubic meters per day in March 2010 to 33.67 mmscmd in April first week.