Introduction

1. O.M.P. No.192 of 2012 under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) has been filed by Union of India (‘UOI’) through the Ministry of Petroleum and Natural Gas (‘MoPNG’) challenging the majority Award dated 23rd December 2009 passed by the Arbitral Tribunal in the disputes between MoPNG, Respondent No.1 Niko Resources Ltd. (‘Niko’), Canada and Respondent No.2 Gujarat State Petroleum Corporation Limited (‘GSPC’) arising out of a Production Sharing Contract (‘PSC’) dated 23rd September 1994 entered into between the President of India (referred to as ‘Government’ in the PSC) on the one hand and GSPC and Niko on the other hand for the exploration, development and marketing of petroleum resources from the Hazira Field in Gujarat, identified in the PSC as the Contract Area.

2. O.M.P. No.944 of 2011 has been filed by Niko under Section 9 of the Act praying for a direction to permit Niko to deposit in this Court MoPNG’s share of unpaid profit petroleum or deposit it in an escrow account during the pendency of O.M.P. No.192 of 2010.

3. The dispute between the parties concerns the cost of construction of a 14 km long 36” diameter pipeline from the Hazira Field to Mora village in the sum of Rs. 93.27 crores which Niko claims is part of ‘development cost’ which it is entitled to recover from the UOI. Niko also seeks to recover Rs. 44.76 crores towards production cost incurred in operating the said pipeline as well as reimbursement of the excess ‘profit petroleum’ paid to UOI. The case of the UOI is that the said pipeline cannot be granted ‘cost recovery’ status as it is outside the scope of the PSC. In order to examine the dispute in some detail, reference may be first made to the provisions of the PSC.

The Production Sharing Contract

4. Pursuant to the bids invited by the MoPNG the aforementioned PSC was entered into between the parties. The Contract Area described in Appendix A to the PSC was to an extent of 50 sq.m specified by points A, B, C and D with the latitudinal and the longitudinal points indicated. Associated Natural Gas (‘ANG’) was defined as natural gas occurring in association with crude oil either as free gas or in solution, if such crude oil could by itself be commercially produced. Non-Associated Natural Gas (‘NANG’) was defined as natural gas which is produced either without association with crude oil or in association with crude oil which by itself cannot be commercially produced.

5. In terms of the PSC, GSPC and Niko (collectively referred to as the ‘Contractor’) were entitled to undertake ‘Petroleum Operations’ which was defined as requiring Development Operations or Production Operations including construction and operation of facilities, plugging and abandonment of wells or disposition of petroleum to the Delivery Point.

6. The Delivery Point under Article 1.20 was defined as Group Gathering Station (‘GGS’) of Oil & Natural Gas Corporation Ltd. (‘ONGC’) or as may otherwise be agreed between the Contractor and ONGC. ‘Cost Petroleum’ under Article 1.18 was defined as portion of the total volume of petroleum produced and saved from the Contract Area which the Contractor is entitled to take in a particular period for the recovery of contract costs i.e. the development costs and production costs.

7. The following terms, viz., ‘development area’, ‘development costs’, ‘development operations’ and ‘development plan’ were defined under Articles 1.21 to 1.24 of the PSC as under:

“1.21 ‘Development Area’, means that part of the Contract Area corresponding to the area of an Oil Field or Gas Field delineated in simple geometric shape, together with a reasonable margin of, additional area surrounding the Field consistent with petroleum industry practice and approved by the Management Committee or the Government, as the case may be.

1.22 ‘Development Costs’ means those costs and expenditures incurred in carrying out Development Operations, as classified and defined in Sect