Cairn and Marubeni seek arbitration over Ravva tax

Vol 6, PW 14 (11 Sep 02) Exploration & Production

LESS THAN TWO weeks after Videocon Petroleum served an arbitration notice on Shastri Bhawan over a Ravva payment dispute, Cairn Energy and Marubeni have followed suit.

On 16th August Cairn and Marubeni sent a joint notice to Shastri Bhawan appointing M.J Clarke of Sydney, Australia, as their arbitrator to decide on seven outstanding issues.

As expected Post Tax Rate of Return heads the list. In dispute is whether the tax should be calculated for the consortium as a whole or separately for individual companies.

The Ravva consortium's Indian companies, ONGC and Videocon, back the Shastri Bhawan position that the calculation should be for the consortium as a whole, while the foreign companies, Cairn and Marubeni take the opposite view. Shastri Bhawan's argument is that it signed the production sharing contract with the consortium and not with individual companies.

Linked to the tax dispute are other issues: should ONGC "carry costs", site restoration costs or "sinking fund payments" be taken into account when calculating Post Tax Rate of Return More, Cairn and Marubeni say they are not obliged to pay royalty and cess on the government's share of profit petroleum. "These issues have been lingering for a long time," reveals a source.

"We have made efforts to come to a solution, but failed. Arbitration is the only way out." Shastri Bhawan must appoint an arbitrator within a month of the Cairn-Marubeni notice.

When the two arbitrators meet they will select a third arbitrator and proceedings can begin.

LNG Summit