AP Shah committee in its report charges Reliance Industries with ‘unfair enrichment’ in dispute with ONGC, says government has to be compensated

The justice A.P. Shah committee that probed a dispute between state-run Oil and Natural Gas Corp. Ltd (ONGC) and Reliance Industries Ltd (RIL) has indicted the latter for “unfair enrichment” in a report submitted to the government on Wednesday.

The dispute pertained to the flow of gas between the adjacent fields of ONGC and RIL in the Krishna-Godavari (KG) basin.

The unfair enrichment stemmed from RIL retaining the gains of the gas which flowed into its KG D6 field from adjacent fields of ONGC, said the report released by the oil ministry late on Wednesday.

The report accused both ONGC and RIL of not bringing to the notice of the regulator, the Director General of Hydrocarbons, information they had about how their fields were connected. ONGC took action six years after it came to know about gas from its field flowing into RIL’s field, the panel said.

It is the government, not ONGC, which is eligible for compensation, the panel said. Oil minister Dharmendra Pradhan had told reporters earlier in the day that the government will take action on the report by the end of September.

Emails sent to ONGC and RIL remained unanswered at the time of going to press, but RIL’s partner BP, which has a 30% stake in Reliance’s 21 gas blocks, including in the KG D6, said it was looking forward to an amicable resolution of the issue.

“Our intent was and continues to be one of resolving the issue in line with well-established global practices,” BP said in a statement issued before the report was made public.

“There is also no other extra-contractual right granted to the contractor that enables it to produce gas, regardless of its source. A contractor is limited by the gas that is available in its clearly defined and demarcated contract area,” the panel said.

Between 1 April 2009 and 31 March 2015, about 11 billion cubic metres (bcm) of gas migrated to KG D6 from adjacent fields, of which 8.9 bcm was appropriated by RIL, the panel said, citing a report by DeGolyer & MacNaughton, a US-based consultancy hired by the firms that had earlier confirmed flow of gas from ONGC’s field to RIL’s.

The panel effectively said RIL has to return the gains it has unfairly made to the government, which is the owner of natural resources, and not ONGC. “ONGC has no locus standi to bring a tortious claim against RIL for trespass/conversion since it does not have any ownership rights or possessory interest in the natural gas,” it said.

It left the task of quantifying the extent of compensation to the government.

In a suggestion that could lead to questions over the role of ONGC executives in the past, the panel said the firm’s role must be scrutinized to determine why it had remained inactive for such a long period without developing its gas field. “ONGC had some rights to explore in the Godavari PML (production mining lease) block in the KG basin since at least 1997, and complete control over its blocks in the area since 2003. However, even today, ONGC has hardly progressed beyond exploratory stage, and there is no commercial production in either of its blocks under consideration,” it said.

The panel supported BP’s recommendation for creation of a mechanism to amicably resolve disputes among parties.

Development of the deep-water gas discoveries in the KG basin has been fraught with controversy as the industry had to deal with an tight regulatory regime, geological uncertainties and inexperience in handling disputes. On 10 March, the government replaced the complex profit-sharing formula for development of oil and gas fields with a simple revenue-sharing formula prospectively. It also gave liberty to contractors to manage gas field operations without close regulatory intervention.http://www.livemint.com/Companies/8Z9wT2ePgcBWiu9zkaIBYK/Shah-panel-indicts-RIL-in-KG-basin-case.html