RIL decides to take RNRL to SC on gas supply issue

Mukesh Ambani’s Reliance Industries Ltd is taking the Bombay High Court order of June 15 on gas supply to Anil Ambani’s Reliance Natural Resources Ltd (RNRL) to the Supreme Court.

“We have been advised to and are filing appropriate proceedings in the Supreme Court against the judgment delivered by the Bombay High Court,” it told RNRL in a mail, in reply to an earlier letter sent in the day by the former, demanding that the HC judgement be implemented without more delay.

The HC order told RIL to supply gas from its D6 well in the Krishna-Godavari basin to RNRL at a set price, much lower than the government-fixed supply price, based on a previous agreement between the two firms, something which RIL disputes. Alternatively, suggested the HC, the two warring brothers’ firms could sit together and work out an agreed alternative.

Yesterday, after RNRL sent more than one letter to RIL, asking the latter to comply with the HC order, RIL wrote to RNRL to say it would do no such thing unless the central government said so (the government fixes supplier and price of the gas).

RIL’s reply had also said it did not concur with RNRL’s interpretation of the findings in the said judgment and the order dated June 15. “The question of deliberately, wantonly or otherwise defying the implementation of the order of the Hon’ble Court does not arise.”

The RNRL letter today stated: “The directions from the court on supply, quantity, price and tenure are clear and unambiguous and are required to be incorporated in the gas supply agreement between RIL and RNRL. You are requested to immediately comply with the orders of the court and cooperate in execution of a suitable and bankable agreement incorporating above terms.”

The HC judgement directed the two companies to enter into an agreement for sale of 28 million metric standard cubic metres a day (mmscmd) of gas from RIL’s D6 block in the Krishna-Godavari basin at $2.34 a million British thermal unit for a period of 17 years, based on an earlier agreement between the two. The price is much lower than the government-fixed price for KG supply by RIL to any supplier; in addiiton, the government rules also specify that other sectors get priority in supply.

As a result, the Union fertiliser secretary has formally argued against the terms, asking his petroleum and gas counterpart to take a legal stand accordingly. The HC judgement itself suggested an alternative was an agreement betwen the two companies.

Other user-industries and firms are also impacted; the fertiliser association has already expressed its apprehensions.

A Citigroup report said any new allocation could take a backseat if the gas issue goes to the apex and uncertainty lingers on. This could impact gas demand and ramp-up beyond 80 mmscmd.

According to RNRL, the gas sale master agreement (GSMA) is a commercially non-bankable agreement, which has prevented RNRL from raising funds and bringing its power plant at Dadri on course.

RNRL in its letter also said that RIL’s supply of 28 mmscmd of gas to it would increase to 40 mscmd if an earlier agreement between RIL and power major NTPC fails. NTPC, is fighting a case against RIL for buying gas for two of its plants—Kawas and Gandahar in Gujarat at a price of $2.34 per mBtu.

RIL had said it would incur loss if it has to sell natural gas from its D6 block at $2.34 a million British thermal unit (mBtu). The company has claimed that its total cost of production from the field is $2.9 per mBtu.

The Citigroup report dated June 30 said that as per its KG-D6 model, RIL’s share starts at 90 per cent but declines to only 15 per cent after 10-11 yrs. “Given that Reliance Power’s units might take 3-4 yrs to start, it would be left with only about 7 yrs of assured volumes. However, it is unclear whether the production sharing contract allows the contractor to claim its profit share in kind,” said the report.