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Reliance Industries and its partners, British Petroleum Plc and Niko Resources, have appointed David Steele, a former British judge, as its arbitrator in its dispute with the Indian government over the pricing of gas from the KG -D6 fields, marking an apparent escalation of its confrontation with the oil ministry under the BJP-led NDA government.
The appointment was made on June 17 and is a follow-up to an arbitration notice send on May 9 by the consortium to the government, disputing its decision to postpone implementation of revised price guidelines. The new government, which took charge on May 26, discussed the price of gas as well as the arbitration notice in a Cabinet meeting on June 25.
It decided to defer a decision for another quarter, sources said. "Government has prepared a draft reply to the arbitration notice and has sent it to the law ministry for its vetting," said a government source, declining to divulge any detail.
According to a PTI report, a Reliance spokesperson said the company notified the government of its decision to appoint an arbitrator on June 17. "Under the PSC (production sharing contract), the government has 30 days from the date of our notification of our appointment to appoint its arbitrator." But government officials said they have 90 days to resolve the matter amicably.
Steel, a London-based commercial law expert, has also been a Judge of the Commercial and Admiralty Courts, London and is currently an associate judge of the Dubai International Financial Centre. The crux of RIL's case is that the PSC says gas price should be market-based and by refusing such a pricing, the government was violating the contract under which it had bid out the oil and gas fields.
The UPA government had fixed the price of gas from the RIL-operated KG-D6 block at $4.20 per unit for five years from the date of commencement of gas supply. As RIL started producing gas from April 1, 2009, the price of $4.20 per unit expired on March 31 this year.
The Manmohan Singh government had approved a new gas pricing formula based on the recommendation of C Rangarajan, the chairman of the previous PM's Economic Advisory Council in December last year and notified it in January 2014. But the UPA government could not announce the new rate of about $8.40 per unit, which was to be applicable from April 1, after the Election Commission vetoed its move on the ground that the model code of conduct was in place. This is the second arbitration case between the RIL-led consortium and the government on matters related to KG-D6 block.
The first arbitration notice was served in November 2011 in which RIL disputed the UPA government's move to deny billions of dollars by way of cost recovery because of a sharp fall in output from the oil and gas fields whch are off India's eastern coast.
While the government has blamed the contractor group, RIL and its partners, for a sharp fall in output because it did not drill the planned numbers of wells, RIL has argued that the fallwas because of geological complexities and in any event the PSC does not link cost recovery to output.
RIL and its partners have named former Chief Justice SP Bharucha as their arbitrator for that case while the government appointed ex-Chief Justice VN Khare. In April, the Supreme Court appointed Australia's retired justice Michael Hudson McHugh as presiding arbitrator.
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