Oil Ministry May Move Supreme Court on Third Arbitrator in KG-D6 Gas Case: Report

New Delhi: The Oil Ministry may move the Supreme Court for appointment of an arbitrator in place of former Australian judge who initially declined to become an umpire in Reliance Industries' KG-D6 gas dispute but later relented on pleas made by the private firm.

The apex court had on April 29 named Michael Hudson McHugh, former judge of the High Court of Australia, as the third arbitrator in the dispute over cost recovery in KG-D6 gas block.

Sources said Mr McHugh on May 20 withdrew as the chairman of the tribunal, to which Reliance Industries had named former Chief Justice of Supreme Court S P Bharucha as its arbitrator and government appointed former Chief Justice of the apex court and V N Khare its counsel, saying he was not contacted before the appointment was made.

He, however, had a change of heart after counsels of the partners in KG-D6 block reportedly wrote to him.

The ministry, sources said, feels that an arbitrator appointed by the Supreme Court cannot reappoint himself once he has withdrawn.

Also, it views with suspicion the ex parte emails exchanged between the counsels of KG-D6 partners and the third arbitrator, subsequent to which Mr McHugh had accepted to be the chairman of the tribunal, sources said, adding that the government has already asked Mr McHugh not to act further in the matter.

The Oil Ministry has asked permission of the Law Ministry to file a petition under Section 11 read with Section 15(2) of the Arbitration and Conciliation Act 1996 for appointment of the third arbitrator on an urgent basis.

In November 2011, RIL had started arbitration proceedings against the government, seeking a decision on its entitlement to recover investments made in the KG-D6 gas field from sales.

The government had disallowed as much as $1.005 billion of its investment as KG-D6 output lagged targets. Production from main fields in the block was way short of 80 million standard cubic meters per day target. The cost disallowed was raised to $2.376 billion for output lagging targets in four years ending March 31, 2014.

RIL and its partners say the action is not as per the production sharing contract (PSC) and they are entitled to recover all costs of the block in the Bay of Bengal.

However, the arbitration couldn't start as the government refused to play ball and it was only after two-and-a-half years that the third arbitrator was appointed by the Supreme Court.

Withdrawing from the tribunal, Mr McHugh had stated that would not be available before September 15 due to his previous preoccupations and since the Supreme Court wanted the process to be expedited, he would not be able to act as the chairman of the tribunal.