Reliance’s $247 million KG D6 debt likely to be settled in 2026 after 12 years

The 13-year financial dispute between the Indian government and Reliance Industries Limited (RIL) over the KG-D6 deepwater gas block is nearing its final chapter, with an international arbitration award expected to be finalized in early 2026. At the heart of the dispute is the government’s $247 million claim that Reliance owes it in excess profits.

Reliance, which has been operating KG-D6 since 2002 along with partners BP and Niko, disputes the allegation saying the claim violates the cost recovery framework under the New Exploration Licensing Policy (NELP). The arbitration proceedings are currently in their final stages.

Cost recovery under the NELP at the center of the dispute

The controversy arose after the government retroactively disallowed part of the cost incurred by the Reliance-led consortium on the drilling and evacuation infrastructure for KG-D6. Under NELP Production Sharing Agreements (PSCs), operators are entitled to recover full development costs before profits are shared with the government, which also earns royalties and taxes.

According to Reliance, oil exploration is inherently risky and private players bear the entire financial burden. In the case of KG-D6, the government invested no capital and had no exploration risk, but still received profit oil and taxes. The company claims that hotspots specifically protect operators from having costs not factored in after the fact, once they’ve been approved and incurred.

Control, approvals and geological setbacks

According to the PSC, the project is overseen by a management committee whose two government representatives have veto power on all key decisions. Reliance says no expenditure was made without the prior approval of the committee and that the government has never alleged any conduct by the operator or breach of contract.

However, when gas production fell short of projections due to unforeseen geological complexities, the government decided to withhold some of the development costs, effectively reducing Reliance’s cost recovery. The company has described this as a « double whammy », arguing that geological deficiency – a known exploration risk – cannot be grounds for retroactively penalizing an operator.

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

Risk sharing and investor confidence

Reliance developed KG-D6 in record time, making it India’s most productive deepwater gas block. The company also points out that it was forced to sell gas at significantly below market prices, which benefited consumers and helped the government curb subsidy bills and fiscal deficits.

Reliance argues that the incident raises wider concerns about the balance of risk and reward in India’s upstream energy sector. While the state shares in the profits, the company claims it must also respect the risks taken by private investors and the sanctity of contracts.

The Arbitral Award, expected by early 2026, will determine whether Reliance will have to pay the $247 million claim or will be allowed to collect all of the approved costs.