Ambanis' soft gas deal takes a knock

Mukesh needs Niko's nod to sell Anil cheap gas.

The oil ministry has rejected the Mukesh Ambani-controlled Reliance Industries' proposal to supply gas at a subsidised rate to Anil Ambani's Reliance Natural Resources Ltd (RNRL).

Sources close to the development said the ministry had asked Reliance Industries to move a joint application with Niko Resources, its partner in developing the D-6 block of the Krishna-Godavari basin, from where the gas was proposed to be supplied to RNRL.

Niko Resources holds a 10 per cent stake in the block while the balance 90 per cent is with Reliance Industries.

"The existing product-sharing agreement signed between the government and contractors in the oil and gas exploration sector reserves the final authority of approval on volume as well as price of any transaction with the Centre. It also demands that any application related to gas supply should be signed by all the contractors. In case of the D-6 block, Reliance Industries and Niko are the contractors. Therefore, they should jointly apply. The ministry is just going by the existing rules," said official sources.

Industry sources said the government's rejection of the Reliance Industries application and insistence on a joint application might pose a question mark on the proposed gas supply if Niko did not agree with Reliance Industries' proposal for supplying gas to RNRL at $2.98 per mmbtu, which was much lower than the market rate.

Industry experts wondered why Reliance Industries made a solo application, knowing well that it needed a nod from Niko for the purpose. Reliance Industries executives could not be contacted for comment.

Reliance Industries and RNRL had entered into a master agreement on gas supply in January. The announcement of the agreement led to a series of allegations and counter-allegations levelled by both the camps against each other.

The Anil Ambani group had alleged that the agreement was not acceptable as it was signed between Reliance Industries and RNRL "" both belonging to the Mukesh Ambani group at that point of time. A few weeks later, the Anil Ambani group took over management control of RNRL and restructured its board of directors.

After the much-publicised corporate battle over the control of the Reliance Industries, the Ambani brothers had reached a settlement in June 2005, which proposed, among other things, that Mukesh Ambani would supply gas to the Anil Ambani group.

RNRL was one of the holding companies created to facilitate the split between the brothers.