This story is from March 29, 2014

BP, Niko join RIL in arbitration against govt

The two companies, which are RIL's partners in the field, served separate arbitration notices earlier this week, sources said.
BP, Niko join RIL in arbitration against govt
NEW DELHI: BP Plc (formerly British Petroleum) and Niko Resources of Canada have become party to Reliance Industries Ltd's arbitration proceedings against the government's decision to levy a $1.8 billion penalty for fall in gas output from the KG-D6 field off the Andhra coast.
The two companies, which are RIL's partners in the field, served separate arbitration notices earlier this week, sources said.
The proposed hike in gas prices, in line with a formula proposed by a panel under PMEAC chairman C Rangarajan, has been put on hold by the Election Commission.
But BP and Niko have been forced to take the step to ensure they are not left out in case the decision is implemented after the elections. The government on Friday asked RIL to continue supplies at current prices.
After the government in January notified the new pricing regime for all producers, which would have seen prices doubling to $8 per unit from April 1, senior oil ministry officials took the stand that in KG-D6, only Reliance would get the benefit of the proposed higher gas price, provided it furnished a bank guarantee worth the value of gas it failed to supply as per the contract.
The officials took the stand after Reliance said it would furnish bank guarantee to cover its holding in the field. Niko has been a 10% partner right from the beginning. Reliance later sold 30% to BP and now holds 60%.
The partners initially had also argued that the operator, or the company in charge of running a field, represents all consortium partners and the officials were splitting hair by asking them to furnish bank guarantees individually in ratio of their holding.

Reliance had initiated the arbitration proceedings after then oil minister S Jaipal Reddy imposed the penalty by not allowing Reliance to recover costs as a punishment for production falling to a 10th of the commitment. Reliance disputed this by saying there was no provision in the contract for such a move and the production has fallen due to geological surprises.
Sources said BP and Niko, like RIL, maintain that the production sharing contract does not provide for a penalty in the form of denying costs incurred if output lags behind projections made in field investment plans.
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