RIL appoints UK judge David Steele as arbitrator in gas dispute

Reliance Industries and its partners, BP Plc and Niko Resources, have appointed David Steele, a former British judge, as arbitrator in the company's dispute with the Indian government over the pricing of gas from the KG -D6 fields.

The announcement that comes nearly a fortnight after the new government at the centre decided to put off a revision in natural gas prices by another three months, marks an apparent escalation of its confrontation with the oil ministry.

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.

According to RIL, the production sharing agreement signed with the ministry of petroleum and natural gas allow for market-based prices and the BJP-led NDA government's refusal to revise prices amounted to a violation of the contract under which it had bid out the oil and gas fields.

Reliance Industries and its partners had, on 9 May, issued a "pre-arbitration notice" saying failure to implement the increase from due date of 1 April is preventing them from sanctioning investments of almost $4 billion this year.

RIL-BP-Niko had, on 17 June, served a formal arbitration notice naming London-based David Steel as its arbitrator.

The parties, however, did not name their arbitrator as required for dispute resolution under the Production Sharing Contract (PSC) although the Supreme Court had, in April appointed Australia's retired justice Michael Hudson McHugh as the presiding arbitrator.

RIL had, earlier, named former chief justice of India S P Bharucha as their arbitrator for the case while the government has chosen ex-CJI V N Khare.

The dispute centers around RIL's claims of having invested billions of dollars in the KG-D6 fields even as gas production declined steeply and the government had disallowed as much as $1.8 billion of its investment. Production from main fields in the block is almost a tenth of the 80 million standard cubic meters per day target.

RIL and its partners, however, claim they are entitled to recover all costs of the block under their production-sharing contract with the government.

The three firms want the government to implement revised natural gas price of $8.22 per million British thermal units upon expiry of the $4.2 per mmBtu fixed for gas produced from the eastern offshore KG-D6 gas fields.

The UPA government had, on 10 January, notified the new domestic gas pricing formula to be implemented from 1 April 2014, on the expiry of the current formula, but could not implement it because the announcement of the general elections.

The decision on the new gas prices was left to the new government and revision of rates was put off to 1 July. The new government last month decided to defer a decision by a further three months pending wider consultations on the formula.

RIL now says the government now has 30 days, ie, up to 17 July, to reply to the Notice of Arbitration (NoA), sources said, adding that the oil ministry has referred the NoA to the law ministry for opinion.

Sources say the petroleum ministry has the option to either deny the existence of a dispute or nominate an arbitrator to represent it.