• Mukesh Ambani says RIL, BP will not drop cost recovery arbitration for KG-D6

    Reliance Industries Chairman Mukesh Ambani has said that the company will not withdraw the cost recovery arbitration over the Krishna-Godavari (KG) asset, dismissing speculations that the company and its joint venture partner are close to dropping arbitration so that they are eligible for higher pricing as per the government’s policy. Ambani refrained from commenting on the report by the panel headed by former chief justice of Delhi High court AP Shah detailed Tuesday, which said that the company made “unjust” gains by pumping natural gas that flowed from ONGC’s adjoining block.

    “Our upstream business is in partnership with BP and we want to constructively make sure that we are not going to withdraw the cost recovery arbitration. We are confident of constructively finding a solution,” Ambani said in response to shareholders’ query at the company’s Annual General Meet on Thursday. Ambani’s statement comes at a time when speculations are rife that RIL, BP and their partner Canada’s Niko Resources are contemplating pulling out of the multiple arbitration they have against the government relating to the KG-D6 asset. Prime Minister Narendra Modi-led government announced policy changes in March this year that requires them to drop the arbitration in case they want to get the higher gas prices being offered.

    The RIL-led consortium has formally started the process of developing their deep sea fields, which the industry saw as precursor to them withdrawing arbitration so that they can charge market price for natural gas. “We will work with BP and we will not give up our legal rights. We expect the results in consultation with our partner as we have to respect our partner,” he said. In March, the government detailed a new policy linking the price of gas from undeveloped difficult fields such as deep sea and high pressure-high temperature areas to alternative fuels, effectively doubling the prices. While the maximum price available to domestic natural gas is $3.06 per unit, difficult fields can avail $6.61 per unit as gas price. The same policy states that any operator engaged in litigation against the government can not avail these prices.

    “Our KG-D6 block has produced 2.6 TCF of gas and 29 million barrels of crude oil since commencement of output. We are making our best efforts to sustain production from this complex deep water basin,” Ambani said. “We are also evaluating, along with our partner BP, development plans to monetize the remaining resources of 4-5 TCF from this block, in the framework of the new gas pricing policy.”

    The government disallowed $2.756 billion cost incurred by RIL and its partners in the KG-D6 block, citing that they missed the gas production target for five consecutive years beginning April 1, 2010. As per the Production Sharing Contract, RIL and partners deduct all capital and operating expenses from the sale of gas before sharing profit with the government but the disallowed amount changes the calculation and thus the government has claimed additional profit petroleum of $246.9 million. RIL and partners challenged this, citing that the output fall is a natural phenomenon and they cannot be held responsible for it. Darius Slay Womens Jersey

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