Govt to appeal against arbitration panel rejecting its $1.5 bn claim against Reliance

New Delhi: The Law Ministry has held that an international arbitration panel's ruling rejecting the government's demand for USD 1.5 billion from Reliance Industries and its partners for allegedly siphoning gas from fields of ONGC is a fit case for appeal, sources in know of the development said.

The Oil Ministry had sought an opinion of the Law Ministry on the July arbitration award going against the government. Sources said the Law Ministry was of the opinion that the majority arbitration award was in violation of the terms and conditions of the production sharing contract (PSC), lacked required reason and was against the public good and public interest.

A three-member international arbitration tribunal by a majority vote in July 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.

Sources said the Law Ministry was of the opinion that the tribunal had ignored the contractual obligation and statutory duty on part of operators to furnish information to the government about any migration of gas. It felt the award is a fit case for a challenge in the High Court, they said.

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 had 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". In his dissent note, G S Singhvi said that the PSC prohibits Reliance and its partners from producing and selling gas which migrated into their sub-sea reservoir from the 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".

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. 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.

On the company not informing the government of a report commissioned by its partner Niko Resources indicating connectivity between KG-D6 and neighbouring blocks of ONGC, the tribunal said "the alleged failure to furnish information if so proven would at best be a breach of the contractual terms of the PSC or at worst attract penal sanctions under the Petroleum and Natural Gas (PNG) Rules".