What is the state of the case?
The Supreme Court will begin its hearing on October 20. The division bench of the Bombay High Court had directed the two sides to negotiate a suitable agreement based on Reliance Industries (RIL) supplying Reliance Natural Resources Limited (RNRL) 28 mmscmd of gas for a period of 17 years at a price of $2.34 per mmBtu. The court has said the agreement does not need government approval since the gas comes from RIL’s share of the gas.
But haven’t both RIL and RNRL appealed the judgement?
They have. RNRL says that since the court has ratified its stand, why does it have to negotiate with RIL — RIL should be directed to supply it gas. RIL has also raised several issues. One, it says the MoU, on the basis of which the Bombay High Court gave its judgement, was signed by Mukesh Ambani in his personal capacity and was not binding upon RIL. Two, an agreement between two individuals cannot supersede government policy of allocating gas to different sectors and to fix the price of the gas.
If the MoU is not valid, how did the demerger take place?
RIL argues the demerger was based on a term sheet prepared with various data, but none of its directors had actually ever seen the MoU. RNRL argues this is not correct and says there was lots of correspondence on this between the firms and several law firms were also party to this — the demerger, which was approved by RIL’s board and shareholders was approved of by the Bombay High Court. But clearly the Supreme Court will examine the issue of the MoU which is central to the agreement.
Is the MoU critical since RIL and RNRL have a contract for gas?
At the time of the demerger, RIL also controlled RNRL. According to RNRL, a board meeting was hurriedly called and took 7 minutes to clear the contract — Anil Ambani’s director on it (JP Chalasani) objected to certain clauses but was overruled since the Mukesh side had two directors. The contract mentioned the price of the gas, but the tenure (17 years) and the amount (28 mmscmd) was linked to formulae which depended upon various factors such as the gas reserves, the government’s share in each year and so on. The Bombay High Court, after examining the MoU, fixed the price/quantity/ tenure and said the two sides had to negotiate an unconditional contract on this basis. RIL argues no court can decide the terms of a contract between the two parties. Expect lengthy arguments on the MoU.
What affidavit did the government file in the case?
It said RIL could not sell gas without getting the contract formally approved by it. It also asked that the MoU between the two brothers be struck down since a private contract could not possibly supersede government policy (of allocating gas to various users at an approved price). Later, it modified this. For one, it said the full MoU did not need to be struck down, only the part that pertained to the gas supply. It added, the Empowered Group of Ministers on gas policy had said it did not apply to pre-existing contracts like RIL’s one with NTPC (as the EGoM also said it didn’t apply to RNRL, this will be argued hotly in the Court).
How does the controversy over the petroleum regulator, VK Sibal, come in?
The Central Vigilance Commission (CVC) is investigating charges that RIL associates had bought a flat for one of Sibal’s daughters. The argument here being that Sibal has a vital role in clearing RIL capital costs (the higher the costs, the lower the government share in the gas produced) and so is compromised. Sibal rubbishes the charges saying they were made two years ago, and the fact that the CVC did not investigate matters till now shows there is a motive — to scuttle his extension.
Has this affected the govern-ment’s exploration programme?
Two years ago, the government changed the terms of the new contracts curtailing the marketing freedom offered to producers — this would now be subject to the government’s approval. RNRL argues this is what has ensured a poor response to the latest round of fields offered for exploration. Sibal disagrees and says the response has been good. The Court will also rule on this since, whatever the new contracts may say, there was no such stipulation when RIL got the KG Basin fields or when it signed the NTPC/RNRL contracts. Does the state have the right to bring in retrospective amendments to contracts — the Court will have to decide on this as well.
(Information is power, but too much is paralysis. Business Basics, a fortnightly column, seeks to make knotty issues accessible to the reader)
