Disputes such as the KG basin gas migration case expose gaps in India's Production Sharing Contract regime. Discuss the reforms needed for upstream hydrocarbon contracts.

Under the New Exploration Licensing Policy (NELP), blocks such as KG-D6 were awarded through Production Sharing Contracts (PSCs). Under a PSC, the government gets its share only after the contractor recovers its costs. The Supreme Court has now sent the KG basin gas migration dispute to mediation under Justice Ranjana Prakash Desai [1]. The case shows that these contracts left gaps in how shared reservoirs are managed, how revenue is shared and how disputes are resolved.

Gaps exposed by the KG basin dispute

• No unitisation mandate: PSCs had no binding rule for jointly developing a reservoir that stretches across neighbouring blocks. So gas that allegedly moved from ONGC's blocks into RIL's wells turned into a fight over who owns it.
• Cost-recovery model: sharing profit only after costs are recovered forced the State to check contractor costs closely. This bred mistrust, and new blocks have since moved to a different model [2].
• Technical questions decided by lawyers: whether reservoirs are connected is a geoscience question. The SC called the dispute "very complex" and gave the mediator two domain experts to help [1].
• Endless dispute cycle: arbitration, a High Court challenge and an appeal have dragged on for over a decade. Even direct talks failed to find "a viable solution" [1].
• Ad hoc forums: public sector undertakings rarely choose institutional arbitration (arbitration run by a permanent centre with fixed rules) when they draft contracts [4].

Reforms needed

• Fiscal model: build on HELP's revenue-sharing contracts, which replaced PSCs and give a single licence for all hydrocarbons [2]. Move legacy PSCs to the new model on transparent terms.
• Mandatory unitisation clause: require joint development of shared reservoirs. Contracts should fix in advance how output is re-divided and require reservoir data near block boundaries to be shared.
• Standing technical panel: an independent body of experts should decide connectivity and gas volumes before a dispute escalates.
• Tiered dispute clause: negotiation first, then mediation under the Mediation Act, 2023, which lets a government party settle once the competent authority gives written consent [3]. Arbitration comes last, with IIAC as the default forum, as a 2026 parliamentary committee recommended [4].
• Protection for officials: officers who approve settlements in good faith should be shielded from vigilance action, unless bad faith is proved.

The KG basin case shows that contract design, and not only litigation, decides outcomes in upstream energy. Clear unitisation rules, revenue-sharing terms and staged, institution-based dispute resolution can protect the public's stake in natural resources while giving investors certainty. That supports both energy security (SDG 7) and India's aim to become a global arbitration hub.