Reliance and BG, who along with Oil and Natural Gas Corp are joint operators of Panna-Mukta and Tapti oil and gas field, have filed for arbitration saying GAIL under-paid them for 11 million standard cubic metres per day of gas supplied from the fields off the west coast, industry sources said.

ONGC is not part of the arbitration proceedings as a state-owned company is barred from launching legal proceedings against fellow state firm unless explicit permission is taken.

BG and Reliance hold 30 per cent stake apiece in the fields, while the remaining 40 per cent is with ONGC.

Sources said the consortia, which was in November 2004 given freedom to market gas to companies other than GAIL, claimed they were forced to supply gas from the fields at a discount after GAIL said its customers were unable to pay market prices and stopped supplies to power stations.

While GAIL paid $3.11 per million British thermal unit, the joint operators billed $4.6-5.1 per mBtu citing a complex formula mentioned in the Production Sharing Contract for the Panna/Mukta and Tapti fields.

BG and Reliance have appointed former chief justice of India S P Bharucha, sources said adding GAIL has appointed former chief justice of India Ramesh Chandra Lahoti for the dispute.

Lahoti and Bharucha will meet to choose a third, independent arbitrator after which point proceedings would begin.  In November 2004, the government allowed BG-Reliance-ONGC to sell gas directly to customers rather than to Gail.

The joint venture partners revised the price of gas to $5.6 per mBtu and wanted to sell directly to customers bypassing GAIL but upon government intervention sold 11 mmscmd gas to GAIL at $3.11 per mBtu till March 2005.

GAIL increased payments to $3.86 per mBtu from April 2005 to March 2006 for 6 mmscmd and agreed to pay $4.75 per mBtu for 5 mmscmd from March 2006 until March 2008.