Shares of Reliace Industries declined in a weak market after the company in a notice to the stock exchanges on May 4 said that it has issued an arbitration to the government over the production cost recovery issue from the KG-D6 block.
The government had reportedly rejected the cost recovery plan of RIL with regard to the KG-DG gas block in the east coast of India and also slapped a fine of nearly Rs.66bn as production from the block’s Dhirubhai oil fields declined to levels lower than half of what was approved in the $8.8bn plan.
With respect to the cost recovery plan, according to Indian exploration policy, the government allows companies to first recover their cost from oil and gas revenue, and subsequently share profits with the government.
The government, however, has not appointed an arbitrator on the matter since RIL’s arbitration notice on Nov 2011. The company has now filed a petition in the Supreme Court under Sec 11 of the Arbitration Act for the appointment of an arbitrator on behalf of the government by the court.
Reports said that the oil ministry had refused to join arbitration but said there is a dispute over how much of cost can be recovered because of the fall in gas production.
Shares of RIL were trading at Rs.709.50 down 2.3% over the previous close. It had touched a day’s high of Rs.722 and a day’s low of Rs.705.30. The total traded quantity of the shares stood at 1.75 lakh shares on the BSE.