India to appeal arbitration award in favour of Reliance Industries and Shell
The High Court Judge Sir Ross Cranston on 9 June, dismissed arguments India raised under section 68 and 69 of the English Arbitration Act 1996 of Britain.
The Government of India has decided to appeal against the English Commercial Court arbitration award in favour of Reliance Industries (RIL) and Shell (earlier BG Exploration and Production India Ltd) in a cost recovery dispute over the Panna-Mukta and Tapti oil and gas fields in the western offshore.
On 9 June, the government lost its appeal in The English Commercial Court against a Rs 867 crore ($111 million) arbitration award in favour of the companies.
“The Government of India has the right to seek leave of the English Commercial Court to challenge this judgment passed by it,” stated a press statement issued by the Government, adding that, further, notwithstanding two partial awards of $111 million and $143 million in the favour of Contractor, the larger award amounting to $3.85 billion plus interest by the arbitral tribunal under final partial award 2016 is in favour of Government, and is now being pursued through the Execution Petition filed before the High Court of Delhi.
“It is pertinent to mention that, even in the latest award and order of the English Court dated 9.6.22 ($111 million), contractor’s claim amounting to USD 148 million has been rejected,” the statement added.
The High Court Judge Sir Ross Cranston on 9 June, dismissed arguments India raised under section 68 and 69 of the English Arbitration Act 1996 of Britain.
The court dismissed India’s argument under section 68, which had claimed the tribunal’s failure to apply principles of Indian constitutional law which caused “substantial injustice”.
The matter dates back to December 2010 when RIL and BG Exploration & Production India (BGEPIL) dragged the Indian government to court over cost recovery provisions, profits due to the government among other dues.
Through the arbitration, RIL and BGEPIL sought to raise the limit of cost that could be recovered from sale of oil and gas before profits are shared with the government.
The Panna-Mukta-Tapti (PMT) fields are shallow-water fields located in the offshore Bombay basin.
Discovered by Oil and Natural Gas Corp (ONGC), they were bid out in 1994 to a consortium of ONGC (40 per cent), RIL(30 per cent) and Enron Oil & Gas India Ltd (30 per cent).
In February 2002, BGEPIL acquired Enron’s 30 per cent stake in the joint venture. Shell acquired BGEPIL in 2015.
The production sharing contract for the PMT fields laid down deducting costs incurred on field operations from hydrocarbons sold before sharing profit with the government. Disallowing certain items in the cost would result in higher profit petroleum for the government.
In October 2016, an arbitration panel issued a final partial award (FPA) upholding the Centre’s view that the profit from the fields should be calculated after deducting the prevailing tax of 33 per cent and not the 50 per cent rate that existed earlier.
The three member panel also upheld that the cost recovery in the contract is fixed at $545 million in Tapti gas field and $577.5 million in Panna-Mukta-Tapti oil and gas field, against companies’ appeal to raise the cost provision by $365 million and $62.5 million in Tapti (gas field) and in Panna-Mukta (oil field), respectively.
Basis, the award, the government sought $3.85 billion in dues from RIL and BGEPIL. The companies then challenged the FPA before the English High Court.
Last January however, an arbitration tribunal ruled in favour of the RIL and Shell. In its partial final award, the tribunal had awarded the companies around $111 million of the total $260 million sought by them.
In June 2021, the government challenged this before the English High Court.
An RIL spokesperson could not be reached for a comment.