GAIL faces $135m arbitration claim from PMT partners

Vol 10, PW 14 (02 Nov 06) People & Policy

A legal battle is looming between the Panna, Mukta and Tapti consortium of British Gas, Reliance and ONGC against GAIL over unpaid bills going back more than two years.

PETROWATCH learns British Gas and Reliance this week sent two separate but identical notices to GAIL declaring their intention to begin arbitration proceedings for recovery of their individual 30% share of accumulated unpaid bills totalling approximately $135m. ONGC is also a partner in the PMT consortium with 40% but according to government rules it is forbidden from launching arbitration against a fellow state-owned company.

But if GAIL loses the arbitration to BG and Reliance, says a source, ONGC will get its (40%) share of the total unpaid dues to the consortium. ONGC, it seems, was denied permission by the oil ministry to join the arbitration but was assured of a proportionate share in the pending amount if GAIL lost.

Why are BG and Reliance sending separate arbitration notices Our consortium is not a legal entity, we learn. All such notices have to be sent by the individual companies in the consortium.

If BG and Reliance do not receive a positive response from GAIL within a certain period, they will separately appoint a common arbitrator to represent the consortium and will ask GAIL to nominate its arbitrator. Both arbitrators will then jointly appoint the third arbitrator.

Proceedings will take place in India. Moves by BG and Reliance to launch arbitration follow GAILs failure to respond to a demand notice sent more than a month ago.

After they received the demand notice, GAIL asked for 15 days time to respond, says a source. But instead of paying they asked for another 15 days to study the matter.

This second extension ended on 31st October. GAIL has not responded since, we are told.

They probably thought nobody would dare send an arbitration notice to a government company.