Presumably, now that Petroleum Minister Murli Deora has met Prime Minister Manmohan Singh, the latter is satisfied with his explanation that the government’s stance in the Reliance Industries Ltd (RIL) case against Anil Ambani’s Reliance Natural Resources Ltd (RNRL) is correct — the stance is that the agreement between RIL-RNRL to supply gas has no legal sanctity since RIL had to get the contract approved of by the government first. The Production Sharing Contract (PSC) which governs the rights and obligations of both the government and winning bidders like RIL is quite clear on this —seehttp://www.nelpviii.com/content/BidApplication/MODEL_PRODUCTION_SHARING_CONTRACT(MPSC).pdf for the model PSC issued for the current round of the New Exploration and Licensing Policy (NELP-VIII). Clause 21.3 says the contractor has the freedom to market the gas “as per Government Policy for utilization of gas among different sectors” and 21.3.1 elaborates on this, saying “the Government may from time to time frame policy for utilization of gas among different sectors”.
The problem, however, is that this is not the PSC that RIL signed with the government in 2000. That contract, under the NELP-I, gave unrestricted freedom to the contractor (RIL) to sell and the government’s role was restricted to ensuring it got its proper share of the profits. In other words, it would appear that the government changed the model PSC (the changes first came about in NELP-VII in 2007) terms around the same time that the RIL-RNRL fight was hotting up — this is when the petroleum ministry said it had the right to reject the RIL-RNRL contract under the PSC. If the ministry has this right, the RIL-RNRL case goes for a toss — while RIL maintains it cannot sell any gas from the KG Basin without the ministry’s explicit approval, RNRL contends the ministry has no such rights under the PSC.
Apart from what it means for RIL-RNRL, it is a huge move backwards in terms of government policy on the utilisation of natural resources. In November 2005, the government abolished the Gas Linkage Committee — till then, the government allotted natural gas to different users and decided the price as well. Now, with more private players coming in, the government said the pricing would be determined by the market. The PSCs in NELP VII and VIII, however, have a new clause, 21.7 which says contractors (like RIL) have to get their price formulas approved “prior to invitation of price bids or other price discovery steps by Contractor”. This, presumably, is why Deora said in Parliament that the RIL contract with the PSU-power utility NTPC was not valid since RIL had not got the ministry’s permission for its price bid. But forget that. Along with the new restrictions to the clauses on the freedom to market, 21.7 takes you back to the old licensing days where the government determines who is to get gas and at what price. It’s a short step to doing the same for other natural resources as well.
Equally interesting is the battle within the government. Since the RIL-RNRL agreement was predicated on the one RIL had signed with NTPC after winning a global bid to supply gas to two of NTPC’s power plants, the fate of the RIL-NTPC case is critical. In this case, the government filed an affidavit saying RIL could not enter into any contracts that ran counter to its Gas Allocation Policy (which came into being eight years after the PSC was signed with RIL!), so NTPC asked the Solicitor General (SG) for his opinion. The SG’s opinion excoriates the petroleum ministry … “Any ministry which represents the Central Government, in law, is supposed to be constantly conscious of other departments of the Central Government. It is only upon this principle that departments of governments are authorised to represent Central Government in litigation”. He went on to say the government’s affidavit in the NTPC case in the Bombay High Court needs to be relooked keeping this in mind and says it “could place the Central Government in a place of great public embarrassment”. NTPC subsequently called upon the Attorney General for his view, and he gave one that was similar.
Which way the courts will judge the two cases is not known, but courts have been reluctant to intervene in several such instances in the past — telecom is replete with such examples — citing the government’s sovereign right to make and change policy. Perhaps, in the same manner that we have a Foreign Investment Promotion Board, it is time to have an Investment Protection Board which deals with such instances or for the government to give up this right and, in the words of the SG, “take a stand consistent with the highest canons of justice”?
