Vedanta wins arbitration against govt in $1.1 billion cost disallowance case

Anil Agarwal’s Vedanta Ltd has won an arbitration against a demand for a higher payout from its prolific Rajasthan oil and gas fields.

Mining magnate Anil Agarwal's Vedanta Ltd has won an arbitration against a demand for a higher payout from its prolific Rajasthan oil and gas fields after disallowance of ₹9,545 crore ($1.16 billion) in certain costs incurred, the company said.

The government has sought additional profit petroleum (or its share from the oil and gas fields) after it reallocated certain costs between the fields in the block and disallowed a portion of the cost incurred on laying a pipeline to evacuate oil produced from the Rajasthan block.

As per the contract, companies are allowed to recover all costs incurred before splitting profit in a predetermined ratio with the government. If a certain portion of cost is disallowed, it would result in higher profits and a resultant higher share to the government. Vedanta had challenged such a demand before an arbitration tribunal.

"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," it said in a stock exchange filing.

It however did not give details of the arbitration award. "The company is in the process of reviewing the award in detail and evaluating its financial impact," it said.

In its latest annual report, Vedanta had put the number at ₹9,545 crore.

"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 ₹9,545 crore applicable interest thereon representing share of the company and its subsidiary," it said.