For RIL, arbitration withdrawal a positive
Almost a week after the joint announcement by Reliance Industries (RIL) and BP Plc to invest ~40,000 crore in its Krishna-Godavari Basin field, a senior BP official said the company had withdrawn its arbitration with the government related to gas prices.
This has triggered hopes that the government might now allow the oil majors to charge a higher price for gas from KG-D6. While the price for domestic natural gas for the period of April 1-September 30 has been kept at $2.50 per million metric British thermal unit (mmbtu), a higher price of $5.56 per mmbtu for deepwater blocks has been allowed. However, RIL and its partners were denied these prices due to arbitrations.
“Yes, we have already withdrawn the arbitration,” confirmed a BP official, while refusing to divulge further details.
There are three more arbitrations between both parties but the companies are tight-lipped about it. These include cost recovery, gas migration penalty and penalty for unfinished minimum work programme. A government official declined to comment on the issue.
“We see this as a positive, as withdrawal of arbitration was a key requirement for RIL to get higher prices under the new formula for new deepwater gas. While there is no nearterm earnings impact (actual production is still a few years away ), it is a positive sentiment ,” said a JP Morgan Markets report.
“RIL might have got some assurance regarding pricing from the government. That might be the reason for fresh investments and also the withdrawal off arbitration,” an industry official said.