A resolution to the long-standing dispute over the share of profit petroleum from the KG-D6 hydrocarbon block off the Andhra coast on the Bay of Bengal involving $247 million (₹2,230 crore) may take place in 2026 as the arbitration between the sparring parties — Reliance Industries Ltd and the government of India (GoI) — reaches its final leg.
The Mukesh Ambani-led RIL has been the operator of the block since 2000, and is contesting the GoI’s claim of seeking additional profit petroleum from the block in an international arbitration.
The dispute had its genesis when the government had disallowed the recovery of part of the costs already invested by an RIL-led consortium. The consortium, which also included the UK’s BP Plc and Canada’s Niko Resources, had built deepwater facilities in the block, a first-of-its-kind in India.
As deepwater exploration and production are usually fraught with risk, the production sharing contracts (PSCs) under the new exploration and licensing policy (NELP) explicitly allow recovery of costs, including those incurred for exploration, development and production, according to the industry sources.
The government receives its profit share according to the terms of the PSC, in addition to royalties and taxes. The government also oversees, approves and audits expenditure incurred by the contractor, in this case, the RIL-led consortium.
Under the PSC, a management committee is set up with two government representatives, who hold veto power over every decision. The contractor consortium cannot implement any decision or spend any money without prior approval of the management committee. The RIL-led consortium followed these processes in letter and spirit and secured all government approvals, industry sources cited above said.
In this case, the dispute, now subject to arbitration, arose when the government sought to disallow part of the capex incurred when gas production turned out to be less than agreed upon. The move irked RIL, which has invested close to $10 billion in the block.
Moreover, no provision of the PSC allows for unilateral and post-facto disallowance of costs after they have been incurred, one of the sources said.
So far, the government has received a significant amount of profit petroleum, royalty and taxes from KG-D6. Moreover, RIL also sold the entire gas produced at a discount to prevailing market prices even as the PSC had explicitly guaranteed a market-driven formula.