Reliance Industries faults Shah panel engagement on gas dispute

New Delhi: Reliance Industries has faulted the constitution of the Justice Ajit Prakash Shah panel by the government to decide the company’s KG Basin gas dispute with state-run ONGC, saying this was without legal basis and that arbitration alone can decide on the matter.

“The dispute raised by ONGC cannot be resolved in this manner,” the company said in a letter to the government, written last month, a copy of which was accessed by IANS.

“Furthermore it is RIL’s respectful submission that the office memorandum is apparently not rooted in any statutory power and is also contrary to the substantive as well as the dispute resolution provisions of the PSC (production sharing contract).”

The office memorandum pertains the formal setting up the Justice Shah panel. The letter said Reliance Industries does not accept the premise that the government can appoint a committee, or can deal with any issues on the dispute by constituting a panel.

Official sources here said the Oil and Natural Gas Corp (ONGC) wants the committee to fix some compensation and penalty for the natural gas that flowed from its own blocks in the Krishna Godavari (KG) basin in Bay of Bengal to the neighbouring KG-D6 fields of Reliance.

But Reliance Industries has all along being rejecting such assertions. “The claims of ONGC have been, and are, vigorously disputed by RIL on merits, both in fact and law,” the company said, adding these also has to be done in accordance with law.

“If ONGC wants to lay a claim on the ground that gas migrated from areas in their block to the RIL block, it would have to identify a legal basis to lay such a claim,” said that letter while finding it odd that the office memorandum at the outset assumed that a claim was sustainable.

In this regard it said the report of November 15 submitted by consultants DeGolyer and MacNaughton cannot form the basis of an executive order of the government — and much less provide for the government to appoint such a committee with such terms of reference.

It said all disputes on the subject concerning the conduct of petroleum operations by Reliance Industries must be submitted to final and binding arbitration as provided in the production sharing contract, and asked the government to adhere to the same.

Anything otherwise, would tantamount to a breach of contract, it added.

The US consultants, who had submitted their report earlier last month, had purportedly said gas worth over Rs.11,000 crore had migrated from ONGC’s idling KG fields to RIL’s adjoining KG-D6 block.

But Reliance Industries said nothing in the report points towards any wrongdoing by it.

A source in the oil ministry said the report from the consultants will be examined to ascertain the quantum of compensation payable to ONGC by Reliance Industries, and that that process will be concluded within six months of receipt of the report, as desired by the Supreme Court.

The consultants have suggested that of the 58.68 billion units of gas produced from the KG-D6 block since April 1, 2009, nearly 50 billion units belonged to Reliance Industries and that the remaining could have come from the state-run company’s allocated blocks.

At $4.2 per million units, this disputed gas is worth $1.7 billion (Rs.11,055 crore).