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Shah panel report on RIL-ONGC dispute puts government in a fix over compensation
The Economic Times, Sep 02, 2016
The official panel's report on the Reliance-ONGC gas dispute has left the government in a fix as the report has not quantified the compensation to be paid for the gas that flowed into RIL's block. This can further delay the resolution of a key issue for which the committee was set up, sources familiar with the development said.

Industry executives said the report has also created consternation in ONGC, which faced stern words from the committee although the company which had gone to court against Reliance and the oil ministry alleging that Reliance was illegally pumping out its gas. Company executives resent the panel's view that ONGC deserves no compensation from RIL.

"For the government, the main issue in the terms of reference of the committee was to quantify 'unfair enrichment, if any', but the committee has thrown the ball back to the ministry's court," an official source said.

The panel, which had a purely advisory status, said lack of data and "inherent technical limitations" prevented it from quantifying 'unfair enrichment'.

When the panel was appointed, RIL and Niko said it had no power to adjudicate, its decisions were not binding, and that the government's intervention in the matter meant that the dispute could be resolved only by arbitration.

Reliance has not reacted to the panel's report but its position has been that all its drilling and field development decisions were taken with the prescribed regulatory and official approvals, and that it had extracted natural gas from wells drilled strictly within the boundaries of its own block. It said ONGC had no basis to claim a compensation.

ONGC was seeking compensation for the gas that flowed out of its block, while Reliance had contested that claim. The panel said only the government could claim compensation, and criticized ONGC for not developing its own block. It suggested proper scrutiny of the company's role in India's oil and gas sector.

ONGC declined comment on the matter, but its former chairman, RS Sharma, who led the company for five years from the middle of 2006, slammed the committee.

"It's extremely disappointing," said Sharma, whose stint partly coincided with the period during which Reliance allegedly made "unjust enrichment" from gas that flowed into its block.

"The contention of the committee that compensation should go to the government, not ONGC, is absolutely wrong. The committee has made a gross error of judgement. If the government agrees to this part of the recommendation, it will send a negative signal to all investors. ONGC by virtue of having the mining lease owns the rights to all revenues from sub-surface production," Sharma said.

The Directorate General of Hydrocarbons had initially made a similar plea to the Shah panel, arguing that ONGC possessed a "right to the economic benefits" under the contract for the gas that migrated beyond its block.

Subsequently, its advocate put forth a different argument that "ONGC had no right to any restitution," since ONGC has not produced any gas. The government later told the panel to take an independent view on the issue.

"What is the sanctity of the contract if all revenues were to go the government?" said Sharma, who also heads the hydrocarbon committee of FICCI, an industry lobby.

Ashok Varma, who retired as director at ONGC last year, said the panel has established two key things that the gas has migrated and that it was pumped out.

"This is a key step in the long battle forward," he said. But the resolution won't be easy, he said. "The ministry will take a long time in quantifying the gains made by Reliance. And Reliance is not going to accept the findings anyway," he said.

Sharma vehemently denied the panel's observation that ONGC probably had prior information about gas migration but didn't act promptly.

"The ONGC management at any level had no prior knowledge about the connectivity of the reservoirs, or that the gas was migrating from one field to the other, or that it was being siphoned off. That was a shock to me when I heard about this in 2013," he said. ONGC had first flagged the issue in 2013.

The panel has also criticized ONGC for delaying projects and recommended a further enquiry into it. Responding to this, Sharma said the deep water discovery in the KG Basin was 'not commercially viable' at the then prevailing price and which is why its development was delayed.

"ONGC needed $6-7 per unit of gas price to make it commercially viable. But the domestic gas price was $4.2/unit. This government has now given a higher pricing for deep water gas which will now help develop this block," he said.

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