RIL-BP drops gas price arbitration against Centre

On June 15, when Mukesh Ambani, along with his partner BP plc, announced his return to the oil and gas business after a lag of almost six years, with a huge investment in the controversial KG D6 block, he said: “The new policies that have been announced have facilitated this investment.”

Before making that announcement last week, Ambani’s Reliance Industries Ltd (RIL) and BP decided to drop the arbitration against the Centre on the gas price which their joint venture was was getting from the producing fields (D1 and D3) of the D6 block. In an emailed response to BusinessLine, BP said: “Yes, the gas price arbitration has already been withdrawn.”

The reason for doing this was simple. If RIL and BP wanted to enjoy the benefits of the Centre’s decision of marketing and pricing freedom for gas to be produced from discoveries in high pressure-high temperature, deepwater and ultra deepwater areas, they had to drop the arbitration.

According to government guidelines, the marketing and pricing freedom will be applicable to future discoveries as well as existing discoveries yet to commence commercial production as on January 1, 2016. However, in the latter instance, the guidelines said, if there is pending arbitration or litigation filed by the contractors directly pertaining to pricing covering such fields, the benefit shall be extended only on the conclusion/withdrawal of such litigation/arbitration and the attendant legal proceedings.

While BP had been in favour of dropping the arbitration, Ambani had not been unrelenting earlier. What has changed now is the positive policy environment, said sources.

Although RIL has withdrawn the arbitration, it is contesting two other legal battles with the Centre, including one on penalties levied on it in the gas migration dispute with ONGC.

Last week, Ambani had said: “We still have some pending arbitrations and we will follow the legal process to bring those arbitrations to an end as per the normal course of law.”

Prevailing price

Now, with the withdrawal of the arbitration on pricing, RIL and BP will get the prevailing price of natural gas from new produce including the R-series that will start production in three-five years from the KG D6 block.

However, for the already producing D1 and D3 fields in the block, it will not get a premium price as policy clearly states only developments after January 1, 2016, will get the benefit.

The price for domestically produced natural gas in the country from April 1 to September 30 has been kept at $2.50/mmbtu. The gas price for deepwater and difficult discoveries has been capped at $5.56/mmbtu.