With the Petroleum and Natural Gas Ministry unwilling to relent, BP and Niko Resources may be left with no option but to join partner Reliance Industries in its arbitration against the Government to qualify for the revised gas price.

RIL-BP-Niko are of the view that as contractor and producer of gas from the D-1 and D-3 fields in the KG-D6 block, off the Andhra coast, the benefit of new price should be available to all three.

But the Ministry is insisting that the two foreign partners of RIL will have to become party to the ongoing arbitration between the Indian firm and the Government.

RIL has challenged the Government for levying penalties for a shortfall in gas production from the KG-D6 block.

On Tuesday, BP officials were again told by the Ministry that the UK-based company has to be partners in the arbitration if it wants to benefit from the higher gas price, effective April 1.

“Though nothing has been concluded as yet, BP may not be left with any option but to join the arbitration,” a person aware of the development said, requesting anonymity.

Production sharing contract

Niko was party to the arbitration in the initial phase, but later withdrew from it.

The Canadian company may have to join again. According to the production sharing contract, both BP and Niko are full joint venture partners in the block.

The joint operating agreement between the contractors – BP, Niko and RIL – authorises the operator, in this case RIL, to act on their behalf including dealing with the Government.

This is the reason cited by the players for not being part of the arbitration so far.

The Government, after a Cabinet Committee of Economic Affairs meeting on December 19, 2013, said the contractor will be allowed to sell D-1 and D-3 gas at the revised price.

BP, RIL and Niko are contractors and producers of gas from the D1 and D3 fields under the KG D6 Block Production Sharing Agreement, BP said.

“BP, RIL and Niko are working closely with the Government to implement the Gas Pricing Guidelines 2014 in accordance with this decision of the Government,” BP said.

“According to the recently notified India Domestic Gas Pricing Guideline 2014, the pricing formula applies for all gas produced in India effective April 1, 2014.

“As to the D1 and D3 gas discoveries, these guidelines become applicable subject to the submission of a bank guarantee in a manner to be notified separately,” it added.

Meanwhile, the Petroleum Ministry has sought legal opinion on the supplement draft agreement for bank guarantee which has to be extended by RIL to get the new gas price.

It is also internally examining whether BP and Niko are party to the arbitration and, therefore, can benefit from the new gas price.

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