The government has challenged before an English High Court an arbitration award over a cost recovery dispute in the western offshore Panna-Mukta and Taoil and gas fields of Shell and Reliance Industries Ltd. Reliance in it’s latest annual report said, “an arbitration tribunal gave favorable award on January 29th 2021.”
Reliance and Shell had through the arbitration sought raising of the limit of cost that could be recovered from sale of oil and gas before profits are shared with the government. The award came this year.
Both sides filed clarification applications before the Tribunal.
“On April 9th 2021, Tribunal issued its decision on the Clarification Applications of both the parties. It granted the minor correction requested by the Claimants (Reliance and Shell) and has rejected all of the Government of India’s clarification requests,” the tribunal said without giving details.
Subsequent to that, the Government of India has challenged the award before the English High Court.
Reliance and Shell- owned BG Exploration & Production India had on December 16, 2010, dragged the government to arbitration over cost recovery provisions, profit due to the state and amount of statutory dues including royalty be able.
The Government of India also raised counter claims over expenditure incurred, inflated sales, excess cost recovery, and short accounting.
The three-member arbitration panel headed by Singapore based lawyer Christopher Lau by majority issued a final partial award (FPA) on October 12th 2016.
The panel upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33% and not the 50% rate that existed earlier.
The panel also upheld that the cost recovery in the contract is fixed at $545 million in Tapti gas field. The two firms wanted that cost provision be raised by $365 million in Tapti and $62.5 million in Panna-Mukta.
Royalty, had to be calculated after inclusion of marketing margin charged over and above the wellhead price of natural gas.
The government used this award to seek $ 3.85 billion in dues from Reliance BGEPIL.
The two firms challenged the 2016 FPA before the English High Court, which on April 16th 2018, remitted one of the challenged issues back to the arbitral tribunal for reconsideration.
“The Arbitral Tribunal decided in favor of the Claimants in large part vide its final partial award dated October 1, 2018. Government of India and Claimants filed an appeal before the English commercial court against this 2018 FPA.
The English Commercial Court rejected Government of India’s challenges to 2018 Final Partial Award and upheld Claimants’ challenge that Arbitration Tribunal had jurisdiction over the limited issue and remitted the issue back to the Arbitration Tribunal.
The final award on the issue came this year.
The government had used the 2016 partial award not just to raise $3.85 billion demand on Reliance and Shell but also sought to block Reliance’s proposed $15 billion deal with Saudi Aramco on grounds that the company owed money to it.
Following this, the court asked the company directors to file affidavits listing assets.
Reliance and Shell had countered the government petition in the Delhi High Court saying the petition is an abuse of process as no arbitration award has fixed any final liability of dues on the company.
Government of India has also filed an execution petition before the Delhi High Court seeking enforcement an execution of the 2016 FPA. The claimants contend that government of India’s execution petition is not maintainable. The government’s execution petition is currently sub judice.
Claimants have also filed an application for recall or modification, challenging the orders of Delhi High Court wherein directors were directed to file affidavits of assets. The matter is listed on July 13th 2021 for hearing.
The Panna-Mukta (primarily an oil field) and Mid and South Tapti (gas field) are shallow water fields located in the offshore Bombay basin. Discovered by state-owned Oil and Natural Gas Corp (ONGC) (40%), Reliance (30%), and Enron Oil and Gas India Ltd. (30%).
In February 2002, British Gas Exploration and Production India Limited (BGPEIL) acquired Enron's 30% stake in the joint venture. BGEPIL was subsequently taken over by Shell.
The production sharing contract for the fields stipulated deducting costs incurred on field operations from oil and gas sold before sharing profits with the government. Disallowing of certain items in the cost would result in higher profit petroleum for the government. Reliance and BGEPIL sort raising of cost recovery limit through arbitration.
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