KG-D6 gas pricing cannot be arbitrated, govt tells SC

14 Apr 2015


The Modi government seems to have hardened its stance on the issue of arbitration with Reliance Industries Ltd over the pricing of KG-D6 gas, arguing before the Supreme Court on Monday that allocation and pricing of a natural resource which a government holds as a trustee of the people cannot be subject to internal arbitration.

In an affidavit submitted to the court, the ministry of petroleum and natural gas has asked the court to throw out RIL's petition to appoint a third arbitrator of independent nationality to decide on the pricing of natural gas.

The affidavit seems to reflect a hardening of stance as this is the first occasion that the government has said the dispute cannot be resolved by arbitration.

Reliance Industries (RIL) and its foreign partners - BP Plc and Niko Resources - may thus find it tough to proceed with the arbitration over non-revision of domestically produced natural gas prices from the KG-D6 block off the east coast.

The government asked the Supreme Court to reject the Mukesh Ambani-led company's plea for appointment of an 'umpire arbitrator'.

On 10 January 2014, the then UPA government notified the Domestic Natural Gas Pricing Guidelines, 2014, for a new gas price regime to be implemented from 1 April 2014. However, an Election Commission diktat did not allow the government to do so.

The NDA government that came to power in May 2014 deferred revising gas prices, and a new price of $5.61/mBtu was implemented only from 1 November 2014 for a period of six months. The price was subsequently revised to $5.18/mBTu effective 1 April this year.

The government told the apex court that its role as an executive in framing policies for an entire sector of entities and the public at large cannot be challenged.

On 9 May 2014, RIL, BP and Niko issued an arbitration notice to the government for not implementing the new gas price, which it claimed was due for revision from 1 April 2014.

Justice Ranjan Gogoi asked both the government and RIL to file their written submissions before 1 May and posted the matter for final hearing on 6 May.

According to the government, the dispute cannot be decided by arbitration as economic policy matters cannot be delved into by the courts unless there is violation or infringement of constitutional or statutory provisions.

''In any event the appropriate forum to decide matters of public policy would necessarily and exclusively be the courts and not a private arbitral tribunal,'' the ministry said in its reply to the petition filed by RIL and its partners.

While RIL and its partners had appointed Sir David Steel, the government had appointed former judge of Supreme Court G S Singhvi as its arbitrator in the dispute initiated by RIL and its partners.

The companies wanted the apex court to appoint an umpire arbitrator since the two arbitrators ''have been unable to come to an agreement for appointment of third and presiding arbitrator for constitution of the arbitral tribunal.

The contractors, who jointly manage KG-D6 block, want an umpire arbitrator of a ''different nationality other than the nationalities of the parties to the arbitration'' as the two of them are foreign parties.

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