Gas price: Govt joins arbitration initiated by RIL, partners

The government on Thursday decided to join the arbitration initiated by Reliance Industries and its partners over delay in revision of natural gas prices, and named former Supreme Court judge G S Singhvi as its arbitrator.

This is the second arbitration between RIL and the government over eastern offshore KG-D6 block. RIL had in November 2011 initiated an arbitration against government move to disallow recovery of certain costs over gas output from KG-D6 block not matching the targets.

With the government delaying a revision in gas prices, RIL and its partners BP Plc of UK and Canada's Niko Resources had on June 17 served an arbitration notice on the government naming London-based Sir David Steel as its counsel.

"Justice GS Singhvi (Retd), former judge of the Supreme Court of India, has been nominated as Arbitrator on behalf of Government of India in the arbitration initiated by RIL, Niko and BP against the government," an official statement said.

The three firms want the government to honour its commitment and implement revised natural gas prices upon expiry of the $4.2 per million British thermal unit rate for their eastern offshore KG-D6 gas fields on March 31, 2014.

The previous UPA government had on January 10 notified a new domestic gas pricing formula that would have doubled the gas rates from April 1 but before it would announce the new price, general elections were declared.

The Election Commission asked the UPA to leave the decision to the new government and revision of rates was put off to July 1. The new government last month decided to defer a decision by a further three months pending wider consultations on the formula.

RIL-BP-Niko had on May 9 issued a "pre-arbitration notice" saying failure to implement the increase from due date of April 1 is preventing them from sanctioning investments of almost $4 billion this year.

This arbitration notice wasn't complete as the partners did not name their arbitrator as required for dispute resolution under the Production Sharing Contract (PSC). RIL-BP-Niko on June 17 served a formal arbitration notice naming Steel as their arbitrator.

While the government had not entertained the May 9 notice, it had 30 days to reply to the June 17 Notice of Arbitration (NoA).

In November 2011, RIL had started its first arbitration proceedings against the government, seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales.

The government had disallowed as much as USD 1.8 billion of its investment as KG-D6 output lagged targets. Production from main fields in the block was almost one-tenth of 80 million standard cubic meters per day target.

RIL and its partners say they are entitled to recover all costs of the block in the Bay of Bengal under their production-sharing contract with the government. They have named former Chief Justice of India S P Bharucha as their arbitrator for the case while the government has chosen ex-CJI VN Khare.

The Supreme Court in April appointed Australia's Justice (retd) Michael Hudson McHugh to chair that arbitration.