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Centre Seeks Over $30 Billion Compensation From Reliance-BP in KG-D6 Gas Dispute
KG-D6 Gas Dispute: The central government has demanded compensation of over $30 billion from Reliance Industries and BP for failing to meet production targets from the KG-D6 gas field. The matter is pending before an arbitration tribunal.
The government has asked for over $30 billion in compensation from Reliance Industries and its partner BP for the shortfall in the production of natural gas from the KG-D6 gas field located in the Krishna Godavari Basin. According to Amar Ujala sources, the government has presented this claim before a three-member arbitration tribunal. The hearing on this 14-year-old case concluded on November 7th. The tribunal is expected to deliver its verdict sometime next year. Meanwhile, Reliance Industries has dismissed the report, stating that it has no claim for $30 billion. The Indian government's claim regarding the KG-D6 block is $247 million, which has been properly and consistently disclosed.
The accusations made by the government are that both parties created overly large gas producers in the KG-D6 block, but were unable to meet the set natural gas production target. However, the value the government seeks as payment within the context of the arbitration process includes the value of the unproduced natural gas, additional costs, marketing of fuels, and interest. All these costs are over $30 billion.
Reliance had set a target of producing 40 million standard cubic meters of gas per day with an investment of $2.47 billion. In 2006, it projected to double production by investing $8.18 billion and drilling 31 wells by March 2011. The company was able to drill only 22 wells, of which only 18 began production. The gas reserves estimate was later reduced from 10.03 trillion cubic feet to 3.10 trillion cubic feet. The government blamed Reliance-BP for this, excluding $3.02 billion in initial years of expenditure from cost recovery calculations. Reliance filed an arbitration notice in 2011 to protest this. Hearings began after January 2023.
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The root of this dispute is the Dhirubhai-1 and Dhirubhai-3 (D1 and D3) gas fields in the KG-D6 block. The government alleges that Reliance did not adhere to the approved investment plan, resulting in underutilization of production capacity. Production in the D1 and D3 fields began in 2010, but began falling short of estimates a year later. In February 2020, both gas fields were shut down well before their estimated lifespan.
