Videocon arbitration with Shastri Bhawan

Vol 6, PW 13 (28 Aug 02) Exploration & Production

TO PAY OR not to pay It's a question that's tearing apart the oil ministry and Videocon Petroleum as they argue over interest on outstanding payments of Profit Petroleum from the latter's share of the 50,000 b/d Ravva oilfield.

Till now, this lingering dispute has remained secret but on 7th August Videocon announced the appointment of retired judge J.K Mehra as its nominee in arbitration against the government.

Shastri Bhawan wants Videocon to pay interest on delayed payments of Profit Petroleum to the government. In July the DGH warned Videocon that it was in trouble and quoted sections 1.7.2 and 1.7.3 of the 'Accounting Procedure' of the PSC.

"All sums due under the contract shall be paid within 45 days from the date on which the obligation to pay was incurred (and for each day of delay) bear interest compounded daily at the applicable LIBOR plus percentage points." But according to Videocon solicitor, Amarchand Mangaldas, Sections 1.7.2 and 1.7.3 are irrelevant. Mangaldas says the relevant portion of the PSC is Article 16.4, which "does not contemplate payment of any interest for such delayed payments." According to Mangaldas, Article 16.4 does not fix a specific date on which profit petroleum payments become due to the government.

"What is provided is that the volume of profit petroleum, to he shared between the government and the consortium, should be determined for each quarter on an accumulated basis." Videocon says it was compelled to seek arbitration as the "government rejected all offers made to amicably resolve" the dispute. Shastri Bhawan has 30 days to appoint its nominee.

Proceedings will begin when they jointly choose a third judge.