Government challenges Panna-Mukta Arbitral Award in High Court of England, Energy News, ET EnergyWorld

The government has challenged an arbitration award in an English High Court in a dispute over cost recovery in the offshore Panna-Mukta and Taoil and gas fields of Shell and Reliance Industries Ltd. An “arbitral tribunal rendered a favorable award on January 29, 2021,” Reliance said in its latest annual report.

Reliance and Shell had, as part of the arbitration, requested an increase in the limit on the costs that can be recovered from the sale of oil and gas before the benefits are shared with the government. The award came this year.

Both parties have filed clarification requests with the Tribunal.

“On April 9, 2021, the Tribunal issued its decision on the clarification requests from both parties. It granted the minor correction requested by the claimants (Reliance and Shell) and rejected all of the Indian government’s clarification requests,” he said. he declared without giving details.

Subsequently, the Government of India (GoI) challenged the sentence in the English High Court, he said.

On December 16, 2010, BG Exploration & Production India, owned by Reliance and Shell, brought the government into arbitration over cost recovery arrangements, government benefits and the amount of statutory contributions, including royalties. to pay.

The Indian government has also raised counterclaims regarding expenses incurred, inflated sales, excess cost recovery and shorthand accounting.

The three-member arbitration panel led by a majority of Singapore-based lawyer Christopher Lau issued a Final Partial Award (FPA) on October 12, 2016.

He confirmed the government’s view that field profits should be calculated after deducting the current 33 percent tax and not the 50 percent rate that previously existed.

He also confirmed that cost recovery in the contract is set at $ 545 million in the Tapti gas field and $ 577.5 million in the Panna-Mukta oil and gas field. The two firms wanted this provision for costs to be increased by $ 365 million in Tapti and by $ 62.5 million in Panna-Mukta.

The royalty, he said, was to be calculated after including the margin billed in addition to the natural gas price at the wellhead.

The government used this price to ask for $ 3.85 billion (around Rs 28,000 crore) in dues from Reliance and BGEPIL.

The two firms challenged the 2016 FPA in the High Court of England, which on April 16, 2018 referred one of the disputed issues to the arbitral tribunal for reconsideration.

“The arbitral tribunal rendered a decision largely in favor of the claimants in its final partial award dated October 1, 2018. GoI and the claimants have filed an appeal in the UK Commercial Court against this 2018 APP.

“The English Commercial Court dismissed GoI’s challenges to the 2018 final partial award and upheld the claimants’ challenge that the arbitration tribunal had jurisdiction over the limited issue and referred the issue to the arbitration tribunal.” , indicates the report.

The final price on the matter came this year, he said.

The government had used the 2016 partial award not only to lift a $ 3.85 billion claim on Reliance and Shell, but also to block Reliance’s proposed $ 15 billion deal with Saudi Aramco on the grounds that the company owed him money.

As a result, the court asked corporate directors to file affidavits listing the assets.

Reliance and Shell had responded to the government’s petition in Delhi’s High Court, claiming it was an abuse of process, as no arbitration award established final liability for the company’s contributions.

“The GoI has also filed an application for execution in the Delhi High Court (…) requesting the application and enforcement of the 2016 FPA,” the annual report said. “The plaintiffs argue that the GoI execution request is not sustainable.”

The government’s enforcement petition is currently pending.

“The plaintiffs have also filed a recall / modification request, challenging the orders of the Delhi High Court in which the trustees were asked to file asset affidavits. The case is listed on July 13, 2021 for hearing,” did he declare.

Panna-Mukta (mainly an oil field) and Mid & South Tapti (gas field) are shallow water fields located in the Bombay offshore basin. Discovered by the state-owned Oil and Natural Gas Corp (ONGC), they were offered in 1994 to a consortium made up of ONGC (40%), Reliance (30%) and Enron Oil & Gas India Ltd (30 %). .

In February 2002, British Gas Exploration and Production India Limited (BGEPIL) acquired Enron’s 30% stake in the joint venture. BGEPIL was then taken over by Shell.

The production sharing contract (PSC) for the fields stipulated that costs incurred on the field’s operations of oil and gas sold were deducted before sharing the profits with the government. The denial of certain elements of the cost would lead to an increase in oil profits for the government.

Reliance and BGEPIL requested an increase in the cost recovery limit through arbitration.

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