India-based Reliance Industries (RIL) has said that it will issue a notice of arbitration to the country’s government for imposing a hefty fine on the extraction of gas in KG-D6 block in Krishna-Godavari basin.

The Indian government has asked RIL and its partners UK-based energy major BP and Niko Resources to pay $1.55bn fine for pumping out gas from the adjacent blocks operated by state-owned Oil and Natural Gas Corporation (ONGC).

The company said in a statement: “RIL proposes to invoke the dispute resolution mechanism in the Production Sharing Contract (PSC) and issue a Notice of Arbitration to the Government.

“RIL remains convinced of being able to fully justify and vindicate its position that the Government’s claim is not sustainable.”

Based on the recommendations of the Shah Committee, the government has levied the fine against the parties in respect of gas said to have migrated from neighbouring blocks.

RIL said: “In carrying out petroleum operations, the Contractor has worked within the boundaries of the block awarded to it and has complied with all applicable regulations and provisions of the PSC.”

It said that the government’s claim is based on misreading and misinterpretation of key elements of the production sharing contract.

 According to the government, the parties are restricted to producing only that quantity of hydrocarbon as they existed at the point in time when the PSC was signed, it said.

RIL added that it is “impossible” to ascertain the quantity of hydrocarbons available in the block due to lack of complete data.

The firm said: “The liability of the Contractor has not been established by any process known to law and the quantification of the purported claim is without any basis and arbitrary.”

Image: The Indian government has asked RIL and its partners to pay $1.55bn fine. Photo: courtesy of num_skyman/