SC verdict brings cheer to power, fertiliser sectors which sought continued supply at set price.
The Supreme Court judgment upholding the supremacy of the government’s production sharing contract (PSC) in the Reliance Industries (RIL)-Reliance Natural Resources Ltd (RNRL) case assures continued gas supply to consumers in the power and fertiliser sectors. It also means the government’s projected revenue of Rs 84,000 crore from the entire life cycle of the RIL-operated KG-D6 field will remain unaffected.
Since the court has upheld the government-determined price of $4.2 a million British thermal unit (mBtu) and, in that process, rejected the lower price of $2.34, the government will not lose revenue. A lower price would have translated into a lower government share in profit petroleum and even taxes.
R S Pandey, former Union petroleum secretary, during whose tenure the gas battle moved from the Bombay High Court to Supreme Court, said the judgment clarified that, under the PSC, the right to fix the price formula and regulate distribution of gas rests with the government.
“Had this not been upheld, the consequences would have been adverse for the national economy and future production sharing contracts,” he said.
The power and fertiliser sectors are the two main beneficiaries of the D6 gas, being sold at $4.2 per Btu. Total gas supply to the fertiliser sector during 2009-10 was 12.24 million standard cubic metres of gas a day (mscmd). The sector produced 6.1 million tonnes of urea, bringing a saving of Rs 3,100 crore to the government on fertiliser subsidy.
| TIMELINE |
| NOVEMBER 2004: Feud between the brothers becomes public |
| JUNE 2005: Family reaches settlement to split Reliance group |
| 2006: Formal split takes place, with Mukesh taking control of Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining and textiles. The Anil Dhirubhai Ambani Group gets telecom, power, entertainment and financial services |
| JUNE 15, 2009: Bombay High Court directs RIL and Reliance Natural to enter a gas supply agreement within a month |
| JULY 1, 2009: Reliance Industries says will appeal to the Supreme Court against high court ruling |
| JULY 19, 2009: Indian government steps into the legal dispute, filing petition in the Supreme Court saying the gas is its property |
| OCT 11, 2009: Anil Ambani offers an olive branch to his elder brother. Reliance Industries welcomes the move, but says the dispute under litigation is not merely a family matter |
| OCT 20, 2009: A three-member bench of the Supreme Court begins hearing arguments in the case |
| NOV 4, 2009: The hearing is disrupted when a judge withdraws, citing potential conflict of interest as his daughter worked at a firm that was a consultant to Reliance Industries |
| NOV 5, 2009: A new three-member bench that also includes the chief justice begins hearing arguments from scratch |
| DEC 18, 2009: Court finishes hearing the case |
| MAY 7, 2010: The Supreme Court rules in favour of Mukesh Ambani. Court asks brothers to renegotiate the gas contract within six weeks and approach a companies court within eight weeks |
“Companies such as ours are happy with the outcome of the case. Raw material pricing is important for a sector like fertiliser. We always desired that the government should regulate the price of gas, a vital raw material. This has been reinforced by the Supreme Court,” said R S Nanda, director and chief operating officer, Nagarjuna Fertilizers and Chemicals, which consumes 1.7 mscmd of D6 gas a day at its fertiliser plants.
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The power sector — consuming 18 mscmd of D6 gas, the highest by a sector — is also estimated to have spent Rs 6,000 crore less while generating 4,745 Mw of power. Prior to April 2009, most of these power producers were using naphtha as feed and the power thus produced was at a cost of Rs 3.97 a unit. With the D6 gas, the cost of power production has come down to Rs 2.50 a unit.
The power plants of GVK, Lanco and Torrent Power, among others, consume D6 gas.