The Union government has sought compensation of over USD 30 billion from Reliance Industries Ltd (RIL) and its partner BP, alleging that they built facilities larger than required at the KG-D6 gas fields and failed to meet approved natural gas production targets, sources said.

The claim was made during submissions before a three-member arbitration tribunal, which concluded hearings on November 7 in the long-running 14-year-old dispute. The tribunal is expected to deliver its award sometime next year, after which the losing party is likely to challenge the ruling before the Supreme Court. Reliance and BP have not issued any immediate comments.

According to sources, the government has sought compensation for the value of natural gas that was not produced, along with recovery of excess expenditure incurred on installations, fuel marketing margins and interest. The total value of these claims has been pegged at over USD 30 billion.

The dispute relates to the Krishna Godavari basin KG-DWN-98/3 block, commonly known as KG-D6, particularly the Dhirubhai-1 and 3 (D1 & D3) gas fields. These were the first and largest discoveries in the block to be brought into production. Gas output from these fields began falling short of projections as early as the second year of production in 2010, and production completely ceased in February 2020, much earlier than the expected field life.

Reliance had initially proposed an investment of USD 2.47 billion to achieve a peak production of 40 million standard cubic metres per day. This was revised in 2006 to USD 8.18 billion, with a plan to double output by drilling 31 wells by March 2011. However, only 22 wells were drilled and just 18 were put into production. Unanticipated sand and water ingress led to early well shutdowns, forcing Reliance to downgrade reserves to 3.10 trillion cubic feet from the earlier estimate of 10.03 trillion cubic feet.

The government alleged that the production shortfall was due to Reliance not adhering to the approved development plan and, in the initial years, disallowed USD 3.02 billion in cost recovery. Reliance contested this move, arguing that the production sharing contract does not permit disallowance of costs on such grounds. The company issued an arbitration notice in November 2011.

After prolonged delays over the composition of the tribunal, the arbitration process resumed following Supreme Court intervention. In the proceedings, the government reiterated its claim for unproduced gas and excess recoveries, while Reliance and BP maintained that under the New Exploration Licensing Policy, contractors are entitled to recover all development and operating costs before sharing profits with the government.

They argued that exploration and production involve geological risks beyond an operator’s control and said all investments were approved by a management committee comprising government representatives. Reliance currently holds 66.66 per cent stake in KG-D6, with BP holding the remaining share.