BP & Niko cannot be party to arbitration

Aug 04 2014, 00:23 IST
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SummaryMove follows opinion by lawmin; RIL-govt row to escalate.

Stung by Reliance Industries alleged bid to influence the foreign third arbitrator appointed by the Supreme Court in the KG-D6 block case, the government is set to approach the court with a plea that the relevant arbitration be done strictly within the country sans a foreign umpire.

Armed with a law ministry opinion conveyed to it recently, the petroleum ministry will also take the firm stand that RILs foreign partners, BP and Niko, should not be made a party to the arbitration, which was initiated by the Indian company, sources familiar with the matter told FE.

The governments move would escalate the conflict between it and RIL over the alleged suppression of gas production at the once-prolific KG-D6 block by the company, leader of the consortium operating the asset. RIL has long said the decline in output was for geological reasons and has pitched for a hike in domestic gas price.

The government, on the other hand, slapped penalty notices of $2.3 billion on RIL for the production being below what was promised in the field development plan.

As for the two foreign oil majors, the development would add to the uncertainty over whether they would be eligible for the new gas price which the government is likely to come up with after an ongoing review of entire aspects of domestic gas pricing is over.

The sources said that the petroleum ministry is preparing a strong case to show that RIL has tried to persuade the former justice of the High Court of Australia, Michael McHugh, who the apex court had appointed as third arbitrator on April 29, to continue with the case, even after McHugh declined to assume the role. They added that this private company breached norms by directly communicating with the third arbitrator.

On May 29, McHugh declined to be the presiding arbitrator as directed by the Supreme Court, citing prior commitments. However, on the same day, King & Spalding, London-based legal firm representing RIL, wrote to McHugh to reconsider his decision. It appears that McHugh has been persuaded by RIL lawyer to continue as the presiding arbitrator, not just by the request of King & Spalding, but perhaps also through other informal communications, which government or its lawyers have not been intimated about, a source said.

Finally on July 10, McHugh had informed Indias apex court about his withdrawal from the case.

According to the government, Article 33.6 of the production sharing

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