<b>Sunil Jain:</b> Who is the government batting for?

RATIONAL EXPECTATIONS

While the battle between Mukesh and Anil Ambani over the supply of 28 mmscmd (million metric standard cubic metres a day) of natural gas from Reliance Industries Ltd’s (RIL’s) Krishna-Godavri Basin gas continues in the Bombay High Court, the government stance on it is getting more and more suspect. In the last two years, there have been at least three instances, the last of which just a few days ago, of the government actively stepping in on Mukesh Ambani’s side to ensure RIL does not have to meet its obligations to sell this gas at previously contracted prices. But first, some quick facts of the matter.

 

“In 2003, the government-owned NTPC floated a tender asking for potential suppliers of 12 mmscmd of natural gas for its proposed power plants at Kawas and Gandhar for a period of 17 years. RIL won the bid when it quoted $2.34 per mmbtu (million metric British thermal units), edging out several global suppliers. Later, towards the end of 2005, RIL unilaterally modified the terms and conditions of its agreement with NTPC — for instance, instead of having unlimited liability for non-supply of gas to NTPC, this was capped. NTPC refused to accept this and filed a case in the Bombay High Court asking that RIL be made to honour its original commitment.

 

“Since the NTPC deal happened at around the same time, in early 2004, it was agreed that RIL would supply 28 mmscmd of gas to Reliance Energy’s 7,480 Mw Dadri power plant on the same commercial terms at NTPC (at that time, the Reliance empire had not been divided); when the family split took place, this was put into the family agreement, which was ratified by RIL’s 2 mn shareholders as well as by the court. Later, when the demerger was taking place, Anil Ambani alleged RIL, which controlled all the group companies (including the ones he got finally), unilaterally changed some of the clauses, on liability for instance, though the price and the quantity of gas to be supplied remained the same. Anil Ambani went to the Bombay High Court and in October 2007, while ruling in his favour, the court asked both sides to re-work the contentious clauses in the contract within four months keeping in mind that the family settlement was the base document.

 

“RIL appealed this and one of the arguments being made is that the family settlement was signed by Mukesh as a member of the Ambani family and not by RIL. While the arguments are going on, the court suggested last week that perhaps the Ambanis’ mother be asked to step in again to broker another peace.

 

“Such is the state of the government’s support to NTPC that while Anil Ambani has got a stay preventing RIL from selling what he says is his share of the gas and has won one round in court, the NTPC case is proceeding at a snail’s pace.

Now for the government’s complicity. Under the Production Sharing Contract (PSC) that any oil/gas prospector has with the government, a certain part of the gas/oil has to be given to the government. So, in May 2006, RIL sent a letter to the Ministry of Petroleum and Natural Gas, headed by Murli Deora, asking it to approve the Anil Ambani contract. The ministry rejected this on the grounds the price had not been arrived at through a competitive bid. While this ensured RIL could not legally sell gas to Anil Ambani, the decision was faulty since the government’s concern is only its share of revenue — that is, Mukesh could give the gas to Anil for free as long as he gave the government its share on the basis of the market price. As for that, since the contract had the same commercial terms as the NTPC one, it was actually competitively bid (see “What Murli’s actions mean,” 31/7/2006).

On June 25 this year, an Empowered Group of Ministers came up with its recommendations on a gas utilisation policy for the country, or a priority list of which industries should get gas first and which last. This mouthed generalities for other gas projects but had detailed guidelines for RIL’s KG Basin gas. Among others, the gas utilisation policy ensured that neither NTPC nor Anil Ambani’s Dadri project will get gas from RIL (see “Amar Singh’s right, mostly,” 21/7/2008)! It’ll be interesting to see what happens if Anil Ambani wins the Bombay High Court case. Perhaps the government will say that while the EGoM made its recommendations, these had not been accepted. Perhaps that’s where Anil Ambani’s friend Amar Singh’s new-found clout will come in handy?

And last Thursday, during the course of the court case, the government lawyer TS Doabia (a retired judge) told the court that NTPC did not have a ‘concluded’ deal with RIL! In other words, he single-handedly destroyed NTPC’s case before the same Bombay High Court which, by the way, was supervised and is being argued by the country’s solicitor general. After all, if NTPC doesn’t have a “concluded” deal with RIL, it can’t be asking the latter to supply it gas on terms agreed to in 2003, when oil prices were a fraction of what they are today. It remains to be seen if NTPC will be allowed to contradict this statement and what bearing it will have on its own case against RIL. But one thing is clear, despite 17 years of economic reforms under Dr Manmohan Singh, the days of neutral government are still quite far away.