 "A man walks past an advertisement of Reliance Industries Limited at a construction site in Mumbai")
In the last few years, litigation between India's largest company by revenues, Reliance Industries, and the Indian government and public sector companies has increased, putting at risk investments worth billions of dollars on all sides.
RIL - which seldom took on the government in the past - is doing just that over gas pricing. The government has accused RIL of gold-plating its expenditure on gas extraction in the Krishna-Godavari (KG) basin, thereby reducing the government's share of profits.
The company is also fighting government-owned electricity producer NTPC and ONGC over different issues.
Reliance has put together a high profile team of lawyers, including noted corporate lawyer Harish Salve, to argue its case before various courts and arbitration panels, considering its own investment is at risk.
RIL's battle with the government started after NTPC moved the Bombay High Court in 2006 asking Reliance to honour a contract to supply gas from its KG basin. This, after the company had won a supply tender from NTPC at a bid price of $2.4 per unit. As gas prices moved up, RIL sought a complementary increase in price which NTPC refused. The matter is currently pending in the Bombay High Court even as NTPC's planned expansion in Gujarat, which was premised on RIL's gas supply, has gone for a toss. RIL has argued that it had not signed any formal contractual agreement with NTPC on the gas supply and hence is not obliged to sell gas at the tender price.
The company is also taking on India's largest oil and gas producer - Oil and Natural Gas Corporation (ONGC) - after the latter filed a petition in Delhi High Court accusing RIL of "stealing" gas from its reservoir in Krishna Godavari basin. While filing the petition, ONGC claimed that "gas has been taken" out from its reservoir by Reliance, which drilled its own well nearby.
A report by independent consultant, DeGolyer and MacNaughton (D&M), sided with ONGC's claim and said the government-owned company lost gas worth Rs 8,900 crore to Reliance. The Indian government will now take action on the report and submit its own report to the court.
Reliance Industries in its defence says ONGC cannot make claims on the said Rs 9,000-crore worth of natural gas that "migrated" from the state-run explorer's fields into RIL's KG-D6 block as it is a natural phenomenon.
"Migration of oil and gas beyond block boundaries is a natural phenomenon in which the contractor has no means to control. Therefore, any suggestion that RIL has breached any obligations or violated any provisions of law or of the PSC (Production Sharing Contract) is incorrect," RIL said in a communication to its employees.
RIL also said it had followed every aspect of the production sharing contract and has confined its operations within the (boundaries of its) KG-D6 block. But D&M has said that ONGC and RIL's fields are fully contiguous.
According to industry players, given the KG field did not pan out as expected by RIL, the company may have made losses in this bet. "The company had estimated a volume of 10 trillion cubic feet (tcf) of gas but due to reservoir's complexity and sand and water ingress, the production dropped dramatically. In the past seven years since RIL began production, the company has produced 2.1 trillion cubic feet (tcf) of gas so far. RIL could have over-assessed the field's prospectivity," said an analyst tracking the company. RIL has spent around $9 billion in development of the D1-D3 block.
When Reliance found gas in KG-D6 in 2002, it was touted as the world's biggest gas discovery for India and was the largest find in 30 years. RIL began production of gas from the block in 2009.
Though the block at its peak was to produce 80 million metric standard cubic metres of gas, production remained low, hampering investments of various power and fertiliser units in India.
Industry players said the D&M report would be the basis of the first step for RIL and ONGC to move forward. "The Ministry will examine whether a payment is due and if there is any payment due, how much? If it is a paltry sum, RIL may agree to pay but if it is a huge sum like a Rs 9,000 crore, in all probability the matter would go into litigation," said a government official.
Meanwhile, the dispute between the government and Reliance Industries over gas pricing continues. RIL wanted higher gas prices from April 1 2014 but the Indian government refused. At the same time, the government has accused Reliance of overstating its costs for drilling wells in the KG basin, which, in turn, reduces government's profits. Both the matters are currently under arbitration as RIL has denied any gold plating.
The only silver lining in this array of legal battles, though, has been a case between Reliance and younger brother Anil Ambani-owned Reliance Natural Resources Ltd (RNRL): the Supreme Court has already ruled in favour of RIL.
RIL & Govt: Crossing swords
The only silver lining in this array of legal battles, though, has been a case between Reliance and younger brother Anil Ambani-owned Reliance Natural Resources Ltd (RNRL): the Supreme Court has already ruled in favour of RIL.
RIL & Govt: Crossing swords
Gas prices: Under Arbitration
Over expenditure: Under Arbitration
NTPC: Pending at Bombay HC
ONGC: Pending at Delhi HC
