RIL slaps arbitration notice on government

Reliance Industries Ltd today sent an arbitration notice to the ministry of petroleum and natural gas over its attempts to disallow some of the expenditure incurred in the Krishna-Godavari D6 gas field in view of falling gas production.

Earlier this year, the Comptroller & Auditor General of India (CAG) had indicted RIL for inflating costs on India's biggest gas find, thereby reducing the government's share of revenue. Pressure on RIL increased after gas output from the field dropped by about a third over the year, leading to further suspicions of wrongdoing on its part.

As reported earlier, RIL has consistently argued that the drop in production is due to the unpredictability of gas discoveries. It has roped in Britain's BP to help increase production. It has also denied any false escalation of costs.

A company statement issued on Monday said it would seek arbitration hearing at the earliest possible date. Besides, it maintained that the production sharing contract (PSC) contained no provision that entitled the government to restrict the costs recovered by the company by reference to factors like the production level or the extent to which field facilities were utilised.

''To finally resolve this cost recovery issue so as not to hinder future investments in this block, the company has begun arbitration proceedings against the Government of India to have the company's entitlement to recover its costs, and the validity of the stance adopted by the ministry of petroleum and natural gas, finally determined by an independent tribunal,'' said the statement.

Development costs are approved by a management committee comprising representatives from the government, the Directorate General of Hydrocarbons (DGH), and the company expecting to get the fuel.