Anil Agarwal’s Vedanta wins arbitration against govt in $1.1 bn cost disallowance case  

Industrialist Anil Agarwal’s Vedanta won arbitration against a demand for a higher payout from its Rajasthan oil and gas fields after a disallowance worth $1.16 billion or Rs 9,545 crore in certain costs. The government also sought its share from the oil and gas fields after the reallocation of certain costs between the fields in the block. The government further disallowed a portion of the cost incurred on laying a pipeline to evacuate oil produced from the Rajasthan block.

According to the contract, companies can recover all costs incurred before splitting profit with the government in a pre-determined ratio. If the government disallows a certain portion of the cost, it will get higher profits and shares. Vedanta challenged this demand before an arbitration tribunal, PTI reported citing a company statement.

"The company has received an arbitration award dated August 23, 2023... upholding the contention of the company that additional profit petroleum, on account of Director General of Hydrocarbon (DGH) audit exceptions in relation to allocation of common development costs across Development Areas and certain other matters, is not payable as per terms of the Production Sharing Contract for Rajasthan Block," Vedanta said in a stock exchange filing.

Vedanta has, however, not made the details of the arbitration award public. The company said in its statement that the company is in the process of reviewing the award in detail and evaluating its financial impact. The mining major put the number at Rs 9,545 crore in its latest annual report released last month.

"DGH, in September 2022, has trued up the earlier demand raised till 31 March 2018 up to 14 May 2020 for Government's additional share of profit oil based on its computation of disallowance of cost incurred over retrospective re-allocation of certain common costs between Development Areas (DAs) of Rajasthan Block and certain other matters aggregating to Rs 9,545 crore applicable interest thereon representing share of the company and its subsidiary," it said.

The mining major said it has disputed the demand and the other audit exceptions since it believed these were not in keeping with the production sharing contract (PSC) and were unsustainable. Vedanta Group’s annual report stated that it commenced arbitration proceedings in accordance with the terms of the PSC. It further said that the final hearing and arguments were concluded in September 2022. It added that both parties filed their briefs after the hearing and an award is awaited.

Sources said that the Director General of Hydrocarbon (DGH) is the upstream nodal agency of the Petroleum and Natural Gas Ministry in May 2018 raised a demand for an additional share of profit oil for the government after it disallowed Rs 1,508 crore of the cost incurred on laying a heated pipeline to transport Barmer crude and Rs 2,723 crore in the reallocation of certain common costs.

The numbers were revised in subsequent years. These costs pertain to only Vedanta's share in the Rajasthan block as state-owned Oil and Natural Gas Corporation (ONGC), which holds 30 per cent interest in the block, had agreed to pay the government if these costs are disallowed.

It was not immediately known if the government would abide by the arbitration award. The government had previously challenged all arbitration awards it had lost.

(With PTI inputs)

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