Reliance’s $247 million KG-D6 liability likely to be settled in 2026 after 13 years

A 13-year-long financial dispute between the Government of India and Reliance Industries Limited (RIL) over the KG-D6 deepwater gas block is approaching its final chapter, with an international arbitration ruling expected in early 2026. At the heart of the disagreement is a $247 million claim by the government, which argues that Reliance owes it additional profit petroleum from the block.  

Reliance, which has operated KG-D6 since 2002 along with partners BP and Niko, is contesting the claim, maintaining that the demand violates the cost-recovery framework laid out under the New Exploration Licensing Policy (NELP). The arbitration proceedings are currently in their final stages.  

Cost recovery under NELP at the centre of the dispute  

The dispute arose after the government retrospectively disallowed a portion of the expenditure already incurred by the Reliance-led consortium on drilling and evacuation infrastructure for KG-D6. Under the NELP production sharing contracts (PSCs), operators are permitted to recover their full development costs before sharing profits with the government, which also earns royalties and taxes.  

According to Reliance, petroleum exploration is inherently risky, with private operators bearing the entire financial burden. In the case of KG-D6, the government did not invest any capital and faced no exploration risk, yet continued to receive profit petroleum and taxes. The company argues that the PSCs explicitly protect operators from post-facto disallowance of costs once they have been approved and incurred.  

Oversight, approvals and geological setbacks  

As per the PSC, a management committee oversees the project, with two government representatives holding veto power over all key decisions. Reliance says no expenditure was made without the committee’s prior approval and that the government has never alleged any procedural or contractual violation by the operator.  

However, when gas production fell short of projections due to unforeseen geological complexities, the government moved to disallow part of the development costs, effectively reducing Reliance’s cost recovery. The company has described this as a “double whammy”, arguing that geological underperformance — a known exploration risk — cannot be grounds for retroactively penalising an operator.  

Reliance has also pointed out that other KG Basin blocks developed by different operators have performed worse than KG-D6, yet no similar cost recovery proceedings have been initiated against them.  

Risk-sharing and investor confidence  

Reliance developed KG-D6 in record time, turning it into India’s most productive deepwater gas block. The company also notes that it was compelled to sell gas at prices significantly below market rates, benefiting consumers and helping the government rein in subsidy bills and fiscal deficits.  

The case, Reliance argues, raises broader concerns about the balance between risk and reward in India’s upstream energy sector. While the government participates in profits, the company contends that it must also respect the risks undertaken by private investors and the sanctity of contracts.  

The arbitration ruling, expected by early 2026, will determine whether Reliance must pay the $247 million claim or whether it will be allowed to fully recover its approved costs.