Mukesh, Anil K-G gas row drags on

RIL says it has invited RNRL for renegotiation, but has received no reply

Gas production from the country's biggest gas block is less than a year away, but Reliance Industries (RIL), operator of the block in the Krishna-Godavari basin, and Reliance Natural Resources (RNRL), the biggest buyer of gas from the block, have not made headway on renegotiating the sales agreement.

The Bombay High Court had, on October 14, directed the two warring companies "� RIL, promoted by Mukesh Ambani, and RNRL, owned by younger brother Anil "� to "renegotiate the commercial aspects of the (gas) deal" and submit a progress report within 120 days.

While RNRL wants gas at $2.34 per million British thermal units (mBtu), RIL says pricing cannot be below the government-approved $4.20 per mBtu.

Instead of sitting across the table, the two companies have been blaming each other for the slow progress of the talks.

"We have sent them a letter inviting them for negotiations. They have not replied," said an RIL official.

On the other hand, an RNRL official said that it was up to RIL to initiate the discussions and that they were "in no hurry".

Production of gas from the block, estimated at 80 million cubic metres a day (mcmd), is projected to wipe away the demand-supply shortage in the country. If the two companies cannot reach an agreement on all commercial aspects of the gas sale, and a purchase agreement by mid-February 2008, they are likely to return to court.

"If the stalemate continues at the end of the 120-day period, the court has said that we can return to it," the RNRL official said.

Resolution of the dispute with RNRL is the first step for RIL to open its account with other purchasers. RIL needs to have its sale contracts in place before it can start producing gas, and the quantity of gas it will have for sale to other buyers depends on RNRL's claims.

According to the Bombay High Court order, the entire gas from RIL's field in the Krishna-Godavari basin has been committed to RNRL and NTPC and for RIL's own captive use.

RIL had agreed to supply 28 mcmd of gas to RNRL at $2.34 per mBtu. This price was rejected by the petroleum ministry, saying it was not arrived at through an arm's length pricing mechanism.

"The dispute between the two companies may delay, or force RIL to cap its production from the D6 block, as the gas contracted with RNRL cannot be sold to any other buyer," a Delhi-based analyst said. If the matter goes back to court, it is likely to be another long-drawn battle.

Any price agreement between the two companies, or for any other company, would have to be cleared by the government, as the selling price would determine the government's share of royalty and profit from the sale of gas.