New Delhi: A month after slapping a hefty penalty of over USD 1 billion, the Oil Ministry wants Reliance Industries to reply to its notice before arbitration can be initiated on the issue of gas output lagging targets.
The Oil Ministry had on May 2 written to RIL disallowing USD 1.005 billion out of the USD 5.756 billion investment it had made on developing Dhirubhai-1 and 3 (D1&D3) gas fields in the Bay of Bengal deepsea block KG-DWN-98/3 (KG-D6) as current output of 26 million standard cubic meters per day (mmscmd) was way short of the target of 80 mmscmd for this time of the year.
RIL, through its lawyers had replied that the notice was "illegal" and asked the ministry to appoint an arbitrator to resolve the vexed issue.
"There is no doubt a dispute now but they (RIL) have to first reply to the points raised in our notice," a top Oil Ministry official said.
In its 7-page notice, the ministry admonished RIL for the decline in production and said the company had violated the production sharing contract (PSC) and wilfully drilled fewer wells than what it had committed in its approved field development plan. It also rejected company's argument that unexpected geology caused the decline in production and data established that drilling more wells would not boost output.
RIL's lawyer however stated that "our client fully and emphatically denies the accusations made in your letter that our client has breached its obligations" under the contract.
The official said arbitration would be initiated once its receives reply from RIL on the specific points raised in the notice.
RIL had anticipated ministry imposing penalty and had on November 23 slapped an arbitration notice on the ministry saying the PSC allows operators to recover all their investment and cost recovery was no way linked to level of production.
"We had, based on an opinion of the Solicitor General Rohinton Nariman, not recognised the arbitration notice as no dispute had arisen then. Now, it is for them to dispute the USD 1.005 billion cost we have disallowed and then the matter would go to arbitration," the official said.
RIL's advocate in the response sent within days of the cost recovery notice, accused the Oil Ministry of violating the contractual terms by delaying arbitration for about five months.
"The government of India's refusal since receiving our client's notice of arbitration to nominate an arbitrator and to proceed with arbitration of this dispute constitutes a serious breach of its obligations under the dispute resolution procedures agreed in Article 33" of the PSC, it had said.