Premier Oil threatens legal action if Ratna contract cancelled

NEW DELHI: As Oil Ministry mulls rescinding award of Ratna and R-Series oil fields to an Essar Oil-led consortia, the firm's British partner Premier Oil has warned of legal action, including under India-UK Bilateral Investment Protection Agreement if the 17-year old award was cancelled.


The Ratna-R series of fields, located 90 km southwest of Mumbai in the prolific Mumbai offshore basin, was awarded in February 1996 to Essar-Premier consortium through an open international bidding process then practised by the government for discovered fields.

But signing of the Production Sharing Contract (PSC) got delayed over several issues including dispute over net-worth of Essar and amount of cess and royalty to be paid.

Premier Oil chief executive Simon Lockett on August 22 wrote to Legal Affairs Secretary Brahm Avtar Agrawal, saying the legal opinion obtained by the firm indicated that the Letter of Award granted positive rights to the consortium, including the right to enter into a PSC and a corresponding petroleum mining lease.

"Such rights arose under both Indian law and under the UK- India Bilateral Investment Protection Agreement (BIT) which applies given that Premier Oil Pacific and Essar Oil's parent companies (Essar Energy) are both UK listed entities," he said.

The consortium's rights under BIT are enforceable according to the provisions of fair and equitable treatment, the duty to respect obligations undertaken by the government towards investors, and the obligation to treat the investors no less favourably than Indian investors or those of third states, he said.

Lockett said oil ministry's indicated outcome "would not be acceptable to Premier."

"Because Premier has been informed that Ministry of Petroleum and Natural Gas is considering setting aside or avoiding the Letter of Award, I must state that my duty to Premier Oil plc's shareholders is to protect our investments when they are challenged or cancelled, which includes initiating formal legal proceedings, where appropriate," he wrote.

"I do hope that this is not a course of action fored upon me, and that we may sign the PSC and move forward together with a successful development," he added.

Premier said it is ready to sign the PSC and to commence operations. For the contentious issue on cess and royalty, it said it is willing to pay old cess and royalty rates coupled with fixed cost recovery limit or pay the levies at current rates with updated cost recovery limit on actual investments incurred.