India has won an international arbitration against British firm Cairn Energy on cost deducted by the operators of Ravva oil and gas field, off the Andhra coast, before payment of government's share of profit petroleum.
The Indian Government had questioned the correctness of cost recoveries and deductions made by Cairn Energy, the operator/contractor of the field, R Sasiprabhu, GoIs solictor, said.
Cairn Energy and Ravva Oil (Singapore) Pte, a subsidiary of Marubeni of Japan, had contended that they were entitled to recover cost on a current basis from the petroleum produced.
They also contended they were entitled to recover cost of materials and equipment purchased but not used in operations.
"It was specifically pleaded that these cost recoveries and deductions are not contractually permissible and has been done with a view to suppress government's share of profit petroleum," he said.
The International Arbitral Tribunal accepted the government's stand that recovery of site restoration costs without the same having incurred and/or not by creating a separate fund for the same, was contrary to the Production Sharing Contract.
"As a result, the government is to benefit millions of dollars already deducted by the contractor parties in the last 10 years," he said.
The Tribunal also accepted the stand of the government that the contractor parties cannot recover the costs of materials and equipment until they are actually used in the petroleum operations, otherwise it amounts to government funding the operations which is in conflict with the PSC.
Sasiprabhu of R S Prabhu & Co, the Government of India's solicitor, said the Tribunal has also rejected the claims of the field operators for a company-wise profit determination formula and deduction of Dividend Tax to be paid by them while computing the government's share of profit petroleum.
The Tribunal has directed the contractor and GoI to make necessary adjustments in the accounts in the light of the above decision.
The Arbitral Tribunal consisted of Ahmed El-Kosheri, an Egyptian, M J Clarke of Australia and Justice G T Nanawati. The Tribunal concluded the hearing in just two sittings at the Hague.
The government had previously won a major arbitration against Videocon Petroleum Ltd at London, under which the company had to pay the government full share of profit petroleum, which was unjustly withheld by them.
