NEW DELHI: The government is seeking over $30 billion from Reliance Industries Ltd and BP as compensation, alleging the partners built larger-than-required facilities at the KG-D6 fields and subsequently failed to meet natural gas output targets, sources said.
The government made the claim during its submissions before a three-member arbitration tribunal that on November 7 concluded hearings on the 14-year-old dispute. The tribunal is expected to give its award sometime next year and the party that loses will most likely challenge it before the Supreme Court, three sources aware of the matter said.
Reliance and BP did not immediately offer any comments on the issue.
Sources said the government in the arbitration proceedings sought monetary value of the natural gas that wasn’t produced as well as a compensation for excess amount spent on installations, fuel marketing, and interest.
It put the value for all of this at over $30 billion.
The dispute stems from alleged failure of Reliance to comply with approved investment plan that led to under-utilisation of capacity at the Dhirubhai-1 and 3 fields - the first and the largest of discoveries in the Krishna Godavari basin KGDWN-98/3 (KG-D6) block to be put on production.
Natural gas output from Dhirubhai-1 and 3 (D1&D3) gas fields started to lag company projections from the very second year of production in 2010, and the field ceased to produce in February 2020, much ahead of its projected life.
Reliance, in an initial field development plan, had proposed a $2.47 billion investment to produce a peak of 40 million standard cubic meters per day of gas. In 2006, it revised this to $8.18 billion, projecting a doubling of that output by drilling 31 wells by March 2011. But it drilled only 22 wells, of which only 18 were put to production.
The well started shuttering earlier than expected due to unanticipated sand and water ingress, leading to the company mid-way revising the reserves in the field to only 3.10 trillion cubic feet (Tcf) instead of 10.03 Tcf estimated in the 2006 plan.
The government blamed the phenomenon on the company not sticking to the approved development plan, and in the initial years, disallowed $3.02 billion of costs that Reliance and its partners had incurred on developing the fields. The company disputed this, saying there is no provision in the KG-D6 contract which entitles the government to disallow cost recovery on that basis. On November 23, 2011, Reliance served an arbitration notice, seeking to resolve the dispute.
The arbitration proceedings, however, couldn’t begin as the government refused to accept the judges appointed to the three-member tribunal.
Reliance had in 2014 named former UK judge Sir Bernard Rix as its arbitrator on the tribunal in place of its original choice, SP Bharucha, a former chief justice of India. Justice Bharucha had recused himself from the tribunal where the government had named former chief justice of India VN Khare as its arbitrator.
Michael Kirby, a former judge of the Australian High Court, was in September 2014 appointed by the Supreme Court as the neutral arbitrator and chairman of the panel.
The government moved the Delhi High Court seeking removal of Rix and Kirby, alleging their ex facie bias against the Union government. The court in December 2022 dismissed the Central government’s plea as “not maintainable”.