The Indian government is seeking more than $30 billion in compensation from Reliance Industries and its partner BP in a long-running arbitration case linked to offshore gas production, according to people familiar with the matter. This is the first time details of the government’s claim and the size of the compensation demand have come into the public domain.
According to a report by Reuters, the dispute centres on gas production from the D1 and D3 deepwater fields in the Krishna Godavari (KG) basin, located off the coast of Andhra Pradesh in the Bay of Bengal. These fields are part of the KG-D6 block, which was once seen as a game-changer for India’s energy security.
Arbitration has been ongoing since 2016
A three-member arbitration tribunal has been hearing the case in India since 2016. People with knowledge of the proceedings said final arguments were concluded on 7th November this year. The tribunal is now expected to deliver its verdict around mid-2026. However, the ruling can still be challenged in Indian courts.
India claims $30 billion from Reliance Industries, BP for underproduction from gas field, sources sayhttps://t.co/GiXxg1V0Im
— Mint (@livemint) December 29, 2025
The arbitration was set up under the production sharing contract (PSC) signed between Reliance and the Indian government, which requires disputes to be resolved through a mutually agreed tribunal.
What is the government’s claim?
According to sources, the Indian government has argued that Reliance and BP failed to produce gas as originally estimated from the D1 and D3 fields. The government claims that mismanagement of the fields led to a massive loss of recoverable gas reserves and that it should be compensated for this shortfall.
Officials involved in the case said the $30 billion claim is the largest compensation demand ever pursued by the Indian government against a private company.
The government’s argument is based on the claim that Reliance initially estimated recoverable gas reserves of around 10 trillion cubic feet (tcf) from the D1 and D3 fields. However, only about 20 per cent of that volume was actually produced, according to people familiar with the arbitration submissions.
The government has told the tribunal that Reliance and BP should pay the value of the gas that was never produced due to what it alleges was improper handling of the fields.
Allegations of mismanagement
During the hearings, the government accused Reliance of using what it described as “overly aggressive” production methods. It argued that the company extracted gas from far fewer wells than originally planned, which damaged the reservoir and caused water ingress and pressure problems.
Sources said the government claimed Reliance used only 18 wells instead of the 31 that were initially planned, and did so without putting adequate infrastructure in place. According to the government, this approach caused irreversible damage to the gas fields, leading to the loss of most of the reserves.
The government has also argued that under the PSC, it owns the gas discovered in the block, and that losses caused by mismanagement directly harmed public interest.
Reliance and BP deny liability
Reliance and BP have strongly disputed the government’s claims during the arbitration. According to people aware of the proceedings, the companies have argued that they do not owe any compensation to the government.
In a public statement issued in February 2020, when Reliance announced that it had stopped production from the D1 and D3 fields, the company said total production from the broader KG-D6 block had reached about 3 tcf of gas equivalent. However, the statement did not clearly specify how much of that gas came specifically from the D1 and D3 fields.
A Reliance spokesperson said the arbitration proceedings are confidential and declined to comment further. BP, which holds a 30 per cent stake in the KG-D6 block, also declined to comment. Meanwhile, India’s oil, law and information ministries, as well as the Prime Minister’s Office, did not respond to requests for comment.
Background of the KG-D6 project
The KG-D6 block was awarded to Reliance by the Indian government in 2000 under a production sharing contract. At the time, it was India’s first major deepwater gas project and was expected to significantly reduce the country’s dependence on imported energy.
However, the project faced repeated challenges over the years, including technical problems such as water ingress, falling reservoir pressure, and disputes over cost recovery. These issues prevented the project from meeting its initial production targets.
In 2011, Reliance sold a 30 per cent stake in 21 oil and gas contracts it operates in India, including KG-D6, to BP for $7.2 billion.
In 2012, the oil ministry informed Parliament that Reliance had revised its estimate of recoverable reserves in the D1 and D3 fields from an earlier figure of 10.3 tcf down to 3.1 tcf, even before production began.
Under the PSC, Reliance and its partners were allowed to recover their costs from gas sales before sharing profits with the government. The government’s profit share started at 10 per cent and could increase once costs were recovered.
The tribunal’s verdict, expected next year, will decide whether Reliance and BP are liable for compensation and, if so, how much. Given the scale of the claim, the case is being closely watched by the energy sector and corporate India, as it could set an important precedent for future disputes between the government and private companies in strategic sectors.
