A resolution to the long-running dispute over the sharing of profit petroleum from the KG-D6 hydrocarbon block off the Andhra Pradesh coast in the Bay of Bengal could be reached in 2026, as international arbitration between Reliance Industries Ltd (RIL) and the Government of India enters its final stage. The dispute involves claims amounting to USD 247 million, or about Rs 22.3 billion.

Mukesh Ambani-led RIL has operated the KG-D6 block since 2000 and is contesting the government’s demand for additional profit petroleum. The disagreement arose after the government disallowed the recovery of a portion of costs already incurred by the RIL-led consortium, which also included BP Plc of the UK and Canada-based Niko Resources. The consortium had developed deepwater facilities at the block, a first for India’s upstream sector.

Industry sources said that deepwater exploration and production typically involve high geological and technical risks, and that production sharing contracts under the New Exploration and Licensing Policy explicitly allow contractors to recover costs related to exploration, development and production. Under these contracts, the government is entitled to a share of profit petroleum, in addition to royalties and taxes, and also has the authority to oversee, approve and audit project expenditure.

As per the production sharing contract, a management committee comprising two government representatives is constituted, with veto power over all key decisions. Contractors are not permitted to undertake spending or implement decisions without prior approval from this committee. Sources said the RIL-led consortium followed these procedures strictly and obtained all required approvals.

The dispute escalated when the government sought to retrospectively disallow part of the capital expenditure after gas output fell short of initial projections. RIL has objected to this move, citing investments of close to USD 10 billion in the block and pointing out that the contract does not permit unilateral, post-facto disallowance of costs once they have been approved and incurred.

Despite the dispute, the government has already received substantial proceeds from the KG-D6 block in the form of profit petroleum, royalties and taxes. RIL has also sold the entire volume of gas produced at a discount to prevailing market prices, even though the production sharing contract provided for a market-linked pricing formula.