MUMBAI: Canada’s Niko Resources wants to exit its 10% stake in the KG-D6 gas block off the east coast which it was developing in partnership with Reliance Industries at a time when the government has made a claim of about $1.55 billion against the contractors.
Niko said that the contractor group is not liable for the $1.55 billion claim made by the government of India and is working with partners Reliance Industries and BP to defend against the claim by invoking the dispute resolution mechanism.
“After consideration of favourable developments with respect to natural gas pricing applicable to the company’s undeveloped deep water fields in India, we have now re-launched the sales process for our interest in the D6 Block,” Robert S Ellsworth, interim chief executive officer, Niko Resources said in a statement.
Niko Resources has been trying to sell its stake in the asset but has been unable to do so. The company said it anticipated challenges in selling the stake even as it, along with partners Reliance Industries and BP, challenge the government’s claim in the issue relating to the migration of gas from neighbouring blocks.
“While we believe the D6 Block offers a number of compelling attributes to potential bidders, the sales process will inevitably be complicated by the recent claim made by the government of India against the contractor group of the D6 production sharing contract in respect of gas said to have migrated from neighbouring blocks to the D6 Block,” Ellsworth said.
In March, the government detailed a new policy linking the price of gas from undeveloped difficult fields such as deep sea and high pressure-high temperature areas to alternative fuels, effectively doubling the prices. While the maximum price available to domestic natural gas is $3.06 per unit, difficult fields can avail $6.61 per unit as gas price. The same policy states that any operator engaged in litigation against the government can not avail of these prices. Niko had said that it was disappointed by the “ower than expected” gas price increase.
Reliance Industries declined to comment on Niko’s statement but it has said in a statement earlier this month that the government’s claim was based on “misreading and misinterpretation” and that it will challenge it. RILBSE -1.35 % holds 60% and BP owns 30% in the JV along with Niko.
HSBC in a report has termed the penalty on the RIL joint venture “harsh”, while Citi believes the “penalty appears grossly exaggerated.”
