ONGC gas migration case: RIL arbitration award fit to be challenged, says Law Ministry

Last July, a three-member arbitration tribunal by a majority vote had held that Reliance could contractually produce and sell any gas that might have migrated from adjoining fields of state-owned ONGC into its area.

Written by Amitav Ranjan | New Delhi | Published: September 12, 2018 1:52:54 am
ONGC, ONGC reservoirs, oil and gas reservoirs, Indian Oil and gas reservoirs, Dharemendra Pradhan, Reliance Industries, natural gas license, indian express ‘Arbitration ruling violates petroleum rules and provisions of the agreement’

Endorsing the Petroleum Ministry’s claim of $1.55 billion from Reliance Industries for allegedly siphoning natural gas from ONGC fields, the law ministry has held that the international tribunal’s ruling in July in favour of Reliance violated Petroleum Rules and the production sharing contract (PSC), lacked required reason, and was against public good and public interest.

“Keeping in view the entire facts and circumstances, and considering the ratio of law as has been held by the apex court, the majority award is in violation of the terms and conditions of the PSC as well as the Petroleum Rules coupled with unjust enrichment to the claimant,” underlines the law ministry’s opinion dated August 21.

Last July, a three-member arbitration tribunal by a majority vote had held that Reliance could contractually produce and sell any gas that might have migrated from adjoining fields of state-owned ONGC into its area and that it was not obligated to seek prior permission of the government for doing so. Opposing the award, the Petroleum Ministry planned to challenge it under Section 34 of the Arbitration and Conciliation Act arguing that the “unjust enrichment” was opposed to public policy and fundamental law of the country. However, the law ministry found more legal remedies culled from the tribunal’s order. It argued that Para 94 of the award revealed that the tribunal had considered Petroleum Ministry’s contention that Reliance had failed in its contractual obligations and statutory duty to furnish information to the government about exploiting migrated gas.

“… such failure somehow renders the production and selling of any migrated gas originally from outside the claimant’s (Reliance) contract area as illegal by reasons and knowledge of the connectivity of the reservoir and continuity of the channels,” Legal Affairs said.

“This argument has been ignored (by the tribunal) without any reason and if no reasons are given, the award becomes no award in view of Section 31 of the (Arbitration and Conciliation) Act as the said section requires reasons,” it said. Moreover, it said the tribunal had “accepted and found that there was a breach of the contractual provisions as well as petroleum rules on the part of claimant” but had dismissed it saying that 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 penal sections under the Petroleum & Natural Gas Rules”.

The arbitral award, the law ministry said, was fit to be challenged on both counts as the Supreme Court has held in 2003 that an award must neither violate provisions of the agreement nor provisions of the Arbitration and Conciliation Act. As for appealing under Section 34 of the Act, it said Reliance was “unjustly enriched” by the migrated gas which was not in their block but in a government-owned one which was against public policy. The tribunal had 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.

With Petroleum Ministry’s nominee on the panel dissenting, the other two had held that there was no question of ‘unjust enrichment’ by Reliance as the PSC 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”. It also awarded $8.3 million compensation to the three partners.

Petroleum Ministry had in November 2016, slapped a demand notice on Reliance-BP-Niko combine for producing in seven years ending March 31, 2016, about 338.332 million British thermal units of gas that had seeped or migrated from ONGC’s blocks. It is also pressing Reliance to pay $174.9 million of additional profit petroleum after certain costs were disallowed because of KG-D6 output being lower than the target. The cost recovery issue is being arbitrated separately.

Welcoming the Tribunal decision, RIL told the stock exchanges last July that all contentions of the Reliance-BP-Niko consortium had been upheld by the majority with a finding that “the consortium was entitled to produce all gas from its contract area and all claims made by the government of India have been rejected”.

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