Legal spillover: RIL, ONGC, Shell told to shell out $3 bn in fines

Following an arbitration award in the Panna Mukta Tapti (PMT) oil field dispute that went in favour of the government, Reliance Industries (RIL), Shell and ONGC have been ordered to pay a combined $3 billion in penalties, according to financial daily Economic Times (ET), which quoted people familiar with the matter. RIL and Shell have appealed the arbitration award in a UK court.

ET said the arbitration panel had upheld the government view that the profit from the fields should be calculated after deducting the prevailing tax of 33 percent, and not the 50 percent rate which existed earlier.

This would significantly increase the government's share of profit petroleum, ET said in its report. The tribunal also upheld the government's position that marketing margins should be included in the price of gas, which would also increase its share of profit petroleum as well as a royalty payment.

The report said that the oil ministry had sent out a demand notice last month to Reliance and Shell, which own 30 percent each in the PMT fields off the Mumbai coast, as well as to ONGC that owns the balance 40 percent participating interest. The three companies will have to pay the penalty proportionate to their respective stakes in the PMT field.

RIL, Shell and the oil ministry declined to comment to queries from ET, the report said.

The disputes over the PMT block relate to, among other things, the limits of cost recovery, profit sharing, and audit and accounting provisions of the PSCs. The value of the claim made by RIL and others exceeded $500 million, according to RIL's 2016 annual report.

Even as RIL fights over claims in this oil field, regulatory issues have not deterred the company from making future investments in upstream facilities in India. In June, the company, in partnership with BP Plc, announced it will invest Rs 40,000 crore in the Krishna Godavari block in the next three to five years.

Late last year, a London-based tribunal of arbitrators issued a final partial award (FPA), upholding key contentions of the government.

ONGC hasn't been part of the arbitration or the current appeal. Shell became the operator of the field last year after taking over BG (formerly British Gas), the original operator of the field.

Timeline: Legal battle over Panna Mukta Tapti oilfield

• December 2010: RIL and BG Exploration and Production India Limited referred a number of disputes, differences, and claims arising under two Production Sharing Contracts entered into in 1994 to arbitration against the government. RIL and BG hold 30 per cent stake each in the Panna/Mukta and Tapti fields while the remaining is with state-owned Oil and Natural Gas Corp (ONGC).

• May 2012: The arbitration tribunal passed a number of final partial awards, largely in RIL's favour. This was followed by the government challenging the Tribunal's awards before the Delhi High Court.

• May 2014: The Supreme Court, however, allowed for arbitration to be carried out in the English courts.

• October 2016: A London-based arbitration panel ruled in the Indian government's favour over recovery cost from RIL and BG Group for the PMT oilfields. This was an interim award and the final arbitration award was to follow procedural hearings due from December last year. According to sources, the final award was made in the early part of 2017.