RIL, BP, NIKO issue arbitration notice to government

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Reliance India Limited, BP (formerly British Petroleum) and Niko Resources Limited issued a notice of arbitration on 9 May 2014 to the Government of India, seeking implementation of the “Domestic Natural Gas Pricing Guideline 2014” notified on 10 January 2014.

The consortium, the contractors for the KG DR Block in the Krishna-Godavari Basin, an area in the east coast of Andhra Pradesh where the two rivers discharge waters into the Bay of Bengal, includes Canada-based Niko and BP.

A press release issued jointly by the three companies reads: “The continuing delay on part of the Government of India in notifying the price in accordance with the approved formula for the Gas to be sold has left the Parties with no other option but to pursue this course of action. Without this clarity, the Parties are unable to sanction planned investments of close to $4 billion this year. In addition, this will also delay the ability of the Parties to appraise and develop other significant discoveries made last year. Overall, the Parties were planning to invest $ 8-10 billion in the next few years to significantly increase production from the KGD6 block. This domestic production is essential for meeting India’s energy needs and will also help conserve foreign exchange which is required for imports of natural gas into India at the present time. All of this requires clarity on pricing. The three Parties shall endeavour to work with the Government to achieve a prompt and efficient resolution of this dispute.”

It’s the Government of India that sets gas prices in the domestic market. The Union Cabinet had last year approved a plan to increase the price of natural gas to around $8 per million metric British Thermal units from $4.20 that is charged now. The oil ministry in January said the new price would come into effect from 1 April and would be revised quarterly. But the Election Commission of India, in view of the ongoing elections, restrained the government to implement the new pricing structure. It was a strange intervention because voters are wary of hike in prices of petroleum products post-elections and not pre-elections. That is because it has been seen that the political executives of the Centre and the States withhold their price increasing decisions only till the elections are over. The EC’s intervention had come as a relief to the Congress-led UPA Government.