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Reliance Industries to arbitration over surrender of Krishna Godavari basin block area

Reliance has also moved four other arbitrations with government over deferring revision of gas price

Policy Pulse
Publish Date: Jun 1 2016 1:39PM | Updated Date: Jun 1 2016 1:39PM

Reliance Industries to arbitration over surrender of Krishna Godavari basin block area

Reliance Industries Ltd (RIL) has decided not to pursue arbitration against the government over an order that forced the company to surrender a large part of the Dhirubhai-6 site of Krishna Godavari basin (KG-D6) block that it operates, sources with direct knowledge of the matter said. 

 

RIL had sent a notice of arbitration to the government last year, contesting the latter's 2013 order that asked the company to relinquish about 80% of KG-D6 (Dhirubhai-6 site of Krishna Godavari basin) contract area. 

 

The company recently told the government that it no longer wished to pursue arbitration in this case, a senior official said. The move would help effectively end the dispute, the person said. RIL declined to comment. 

 

Reliance Industries to drop arbitration over surrender of KG-D6 block area Explaining the reason for the firm to drop arbitration, an industry executive said the area Reliance relinquished contains low volume of gas and, with oil and gas prices having crashed now, it would not have made sense to try and commercially exploit it. 

 

In the past, both the company and government have cited provisions of the production sharing contract (PSC), legal guide for operating oil and gas block, to defend their respective stands in the dispute regarding how much area the company needed to relinquish at end of exploration phase. 

 

According to the PSC, the contractor can retain only 'development areas' and 'discovery areas' at end of the exploration period and have to relinquish the rest of the block to the government. 

 

Development areas encompass one or more commercial discoveries and additional area that may be required for development of such discoveries. Discovery areas are parts of the block where, as per the contractor, petroleum can be commercially produced. 

 

It is the disagreement over what can be included in the discovery or development areas for KG-D6 block that resulted in the dispute, which is now closer to resolution. 

 

The notice of arbitration, in this case, was the last of a string of arbitrations Reliance had initiated against the government and was the only one issued after Narendra Modi took over as the prime minister. 

 

Reliance is also expected to withdraw arbitration over gas pricing issue as it is a precondition to avail higher gas prices for its deep sea output. 

 

The government recently changed gas pricing rules, doubling prices available for gas from difficult fields such as that of Reliance. 

 

Company executives have informally indicated to the government that they were preparing to withdraw arbitration over gas pricing, an official said. 

 

Reliance recently floated tenders seeking vendors to develop its deep sea assets, a further indicator of its seriousness to develop these projects and drop litigation.