On 23rd November 2011, RIL had issued arbitration notice under the provisions of the Production Sharing Contract (PSC) relating to Block KG-DWN – 98/3 to the Government of India, on the issue, amongst others, of wrongful denial of cost recovery on the ground of lower production or under utilization of facilities. RIL maintains that any such attempt by the Government is unwarranted and violative of the PSC.
However, since no arbitrator has been appointed by the Government for nearly five months from the Arbitration Notice, RIL has filed a petition in the Supreme Court, under Section 11 of the Arbitration Act, for appointment of an arbitrator on behalf of the Government by the Court.
Notwithstanding the above, the Government, by its letter of 2nd May 2012 has communicated that it proposes to disallow certain costs which the PSC entitles RIL to recover.
RIL continues to maintain that a Contractor is entitled to recover all of its costs under the terms of the PSC and there are no provisions that entitle the Government to disallow recovery of any Contract Cost as defined in the PSC. The Government’s communication articulates the very issues which are subject matter of the notice of arbitration issued by RIL and these issues will be resolved through arbitration process stipulated under the PSC which has been initiated by RIL.