RELIANCE & BP VS GOVERNMENT

India's Reliance Industries and BP of the UK have filed an arbitration notice against the Indian government, marking the latest stage in a row over delays to promised increases in gas prices that the two companies are allowed to charge.

The decision makes BP the second major international investor in less than a week to resort to a legal challenge against its treatment in Asia's third-largest economy, following an arbitration notice filed on Wednesday by British telecoms group Vodafone, in relation to a protracted $2.6bn tax dispute.

The twin challenges from Vodafone and BP, who are by some measures India's two largest foreign investors, are likely to dent further the country's reputation as a welcoming destination for global investment, following a period marked by falling economic growth and worries over burdensome regulation.

Coming only days before the end of India's lengthy national election this Monday, the move also marks a further deterioration in relations between India's government and Reliance, the country's largest industrial company by revenue, and its controversial billionaire owner Mukesh Ambani, the nation's richest man.

Reliance and BP have been involved in a series of rows over bureaucratic and political delays relating to their KG-D6 field, whose discovery in 2002 was hailed as India's largest offshore gas find, and in which BP bought a 30 per cent stake for $7.2bn in 2011.

In particular, the duo had won permission to near-double the regulated price at which they could sell gas from the field earlier this year, only to see the decision delayed until after the end of India's lengthy election, in which results are finally due next Friday.

In a statement, the two companies on Saturday complained that they had been treated "capriciously" by India's government, and warned that as much as $4bn in capital investment due to be made in the field this year was now at risk.

"The continuing delay on the part of the government of India . . . has left the parties with no other option," the statement said, which was also co-released by Niko Resources, a Canadian company that owns a minor stake in the KG-D6 field.

The decision of Reliance and BP to seek arbitration at such a politically sensitive moment is a clear attempt to win early action from India's next prime minister, which opinion polls suggest is likely to be Narendra Modi, opposition leader.

The two companies would benefit if Mr Modi, were he to be elected, push through the previously agreed gas price increase during his early days in office, rather than further reviewing the decision.

However, any quick action would be complicated by political considerations, with any future government that approves the price increase likely to be attacked by opposition groups for aiding Mr Ambani in particular.

The controversial tycoon has been criticised during the election campaign, notably by the anti-corruption Aam Aadmi [or Common Man] party, who have attacked Mr Ambani on charges relating to crony capitalism, which both he and Reliance have denied.

Reliance is midway through fighting a second arbitration battle with India's government dating from 2011, relating to accusations that the company inflated investment costs in KG-D6, while also artificially delaying gas production. Reliance denies the allegations.

ft.com