Likely to be settled in 2026 after 13 years

A 13-year financial dispute between the Government of India and Reliance Industries Limited (RIL) over the KG-D6 deepwater gas block is nearing resolution, with an international arbitration verdict expected in early 2026. The conflict centres on a $247 million claim by the government, which contends that Reliance owes additional profit petroleum from the KG-D6 block. Reliance has strongly contested the demand, arguing that it violates the cost-recovery provisions of the New Exploration Licensing Policy (NELP).

Reliance has operated the KG-D6 block since 2002 along with partners BP and Niko. Under NELP’s production sharing contracts (PSCs), operators are allowed to fully recover approved development costs before sharing profits with the government, which also earns royalties and taxes. The dispute arose after the government retrospectively disallowed a portion of the consortium’s expenditure on drilling and evacuation infrastructure, thereby reducing Reliance’s cost recovery.

Reliance maintains that petroleum exploration is inherently risky and that private operators bear the entire financial burden. In the case of KG-D6, the government invested no capital and assumed no exploration risk, yet continued to receive profit petroleum and taxes. The company argues that the PSCs clearly bar post-facto disallowance of costs once they have been approved and incurred.

According to Reliance, all expenditures were sanctioned by the management committee established under the PSC, where government nominees hold veto powers over key decisions. The company says the government has never alleged any procedural lapses or contractual violations. However, when gas output declined due to unexpected geological complexities, authorities moved to disallow part of the development costs. Reliance has termed this a “double whammy”, arguing that geological underperformance—an accepted exploration risk—cannot justify retrospective penalties.

The company has also pointed out that other KG Basin blocks developed by different operators have fared worse than KG-D6, without facing similar cost recovery actions. Reliance further notes that it developed KG-D6 in record time and was compelled to sell gas at prices well below market rates, helping consumers and easing the government’s subsidy burden.

The outcome of the arbitration is being closely watched, as it is expected to shape investor confidence and clarify the balance between risk and reward in India’s upstream energy sector.