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A 13-year financial dispute between the Indian government and Reliance Industries Limited (RIL) over the deepwater gas block KG-D6 is nearing its final chapter, with an international arbitration ruling expected in early 2026. At the heart of the disagreement is a $247 million claim from the government, which argues that Reliance owes it additional oil profits from the block.
Reliance, which has operated KG-D6 since 2002 with partners BP and Niko, disputes the claim, saying the application violates the cost recovery framework set out under the New Exploration Licensing Policy (NELP). The arbitration proceedings are currently in their final stages.
Cost recovery under the NELP at the center of the dispute
The dispute arose after the government retrospectively rejected part of the expenditure already incurred by the Reliance-led consortium for KG-D6 drilling and evacuation infrastructure. Under NELP’s production sharing contracts (PSC), operators are allowed to recover their full development costs before sharing profits with the government, which also collects royalties and taxes.
According to Reliance, oil exploration is inherently risky, with private operators bearing the entire financial burden. In the case of KG-D6, the government invested no capital and faced no exploration risks, while continuing to collect oil profits and taxes. The company argues that CSPs explicitly protect operators from retrospective rejection of costs once they have been approved and incurred.
Monitoring, approvals and geological setbacks
According to the PSC, a management committee oversees the project, with two government representatives holding veto power over all key decisions. Reliance claims that no expenditure was made without the committee’s prior approval and the government has never alleged any procedural or contract violation on the part of the operator.
However, when gas production failed to meet forecasts due to unforeseen geological complexities, the government decided to disallow part of the development costs, thereby reducing Reliance’s cost recovery. The company described this as a “double whammy”, arguing that geological underperformance – a known exploration risk – cannot justify retroactively penalizing an operator.
Reliance also pointed out that other KG Basin blocks developed by different operators have performed worse than KG-D6, but no similar cost recovery proceedings have been initiated against them.
Risk sharing and investor confidence
Reliance developed KG-D6 in record time, making it India’s most productive deepwater gas block. The company also notes that it was forced to sell gas at significantly lower than market prices, which benefited consumers and helped the government control subsidy bills and budget deficits.
According to Reliance, the case raises broader concerns about the balance of risk and reward in India’s upstream energy sector. Even though the state shares in the profits, the company says it must also respect the risks taken by private investors and the sanctity of contracts.
The arbitration decision, expected in early 2026, will determine whether Reliance must pay the $247 million claim or whether it will be allowed to recover its approved costs in full.
