Govt seeks over $30 billion from Reliance, BP in KG-D6 gas arbitration

The Narendra Modi government, alleged to be on good terms with Mukesh Ambani, has sought more than $30 billion in compensation from his Reliance Industries and its partner BP in a long-running arbitration, alleging that the companies failed to produce agreed quantities of natural gas from two deep-water fields in the Krishna Godavari basin.

According to people familiar with the proceedings, the claim relates to the D1 and D3 fields in the KG-D6 block, once projected as a cornerstone of India’s energy security. A three-member arbitration tribunal has been hearing the dispute since 2016, with final arguments concluded on 7 November. The tribunal is expected to deliver its ruling by mid-2026, which may then be challenged in court.

Underproduction, mismanagement allegations

The government has argued that Reliance initially estimated recoverable reserves at around 10 trillion cubic feet but ultimately produced only about 20 per cent of that volume. It has demanded compensation equivalent to the value of the alleged shortfall, maintaining that all gas discovered under the production sharing contract belongs to the state.

Officials have told the tribunal that the consortium mismanaged the reservoirs by adopting what the government describes as unduly aggressive production methods. According to the government’s submission, Reliance drilled only 18 wells instead of the 31 originally planned. The government says that the company proceeded without sufficient infrastructure, leading to water ingress, loss of reservoir pressure and permanent damage to the fields.

Reliance and BP have rejected the allegations and disputed any liability. In their arguments, the companies said the decline in output was caused by geological challenges rather than operational mismanagement. Both companies declined to comment publicly, citing the confidentiality of the arbitration proceedings.

Project background, parallel disputes

The KG-D6 project, located in the Bay of Bengal off the coast of Andhra Pradesh, was awarded to Reliance in 2000 under a production sharing contract. In 2011, BP acquired a 30 per cent stake in the block and other assets operated by Reliance for $7.2 billion.

Under the contract, the consortium was permitted to recover costs from gas sales before sharing profits with the government. The state’s profit share was set at 10 per cent in the first year, with the proportion rising after cost recovery.

In a public statement issued in February 2020, Reliance said cumulative output from the block had reached about 3 trillion cubic feet of gas equivalent. However, it did not specify how much came from the D1 and D3 fields.

The $30 billion claim is the largest compensation demand ever pursued by the Indian government against a corporate entity. It runs alongside other legal disputes linked to KG-D6, including a separate arbitration over disallowed capital expenditure and ongoing litigation over alleged gas migration from neighbouring blocks operated by ONGC.