Govt asks RIL-Shell-ONGC combine to pay up $3 bn PMT arbitration award
18 July 2017
The government has asked Reliance Industries (RIL), Shell and ONGC to pay a combined $3 billion in penalty following an arbitration award in the Panna Mukta Tapti (PMT) oil field dispute that went in favour of the government, according reports which cited people close to the matter.
A report in The Economic Times, citing sources, said the arbitration panel had upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33 per cent, instead of the 50 per cent rate that existed earlier.
RIL and Shell have appealed the arbitration award in a UK court while ONGC is not a party to the arbitration, the report further added.
The oil ministry had last month sent demand notices to Reliance and Shell, which own 30 per cent each in the PMT fields, which is located in the west coast of India, off Mumbai.
Notice has also been sent to ONGC that owns the balance 40 per cent participating interest in the PMT field. The three companies have to pay the penalty in proportion to their stakes in the fields.
The arbitration award will significantly increase the government's share of profit petroleum. The tribunal had also upheld the government's position that marketing margin should be included in the price of gas, which would also increase its share of profit petroleum as well as a royalty payment.
Late last year, a London-based tribunal of arbitrators issued a final partial award (FPA), upholding key contentions of the government.
ONGC hasn't been part of the arbitration or the current appeal. Shell became the operator of the field last year after taking over from BG (formerly British Gas), the original operator of the field.
The penalty amount was calculated by the Directorate General of Hydrocarbons (DGH), an arm of the oil ministry, based on the outcome of the arbitration.
The PMT arbitration case is one of the many disputes Reliance is fighting with the government. Reliance and partner BP just last month withdrew the gas price-related arbitration against the government.
Reliance also withdrew another arbitration last year related to a government order to relinquish 80 per cent of KG-D6 block that the company operates.
As of now, four arbitration cases related to recovery of cost of developing fields, penalty for unfinished committed minimum work programme in KG-D6 and the government demand for compensation for producing gas from ONGC's fields are underway.
While unveiling a Rs40,000 crore plan to develop new fields in the KG Basin last month, RIL chairman Mukesh Ambani said he expected a fair outcome in arbitration cases.