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NTPC digs in for a legal fight with Reliance

NTPC digs in for a legal fight with Reliance
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First Published: Mon, Feb 12 2007. 03 43 AM IST
Updated: Mon, Feb 12 2007. 03 43 AM IST
New Delhi:  A high-stakes legal battle between the nation’s largest power generation company, NTPC Ltd , and the country’s largest publicly held company, Reliance Industries Ltd (RIL), is getting nasty, with NTPC officials insisting they will not settle the dispute out of court.
The dispute, currently in the Bombay high court, stems from a Rs40,000-crore contract that RIL won in a competitive bid to supply gas to two expansion projects of NTPC in Gujarat that were supposed to provide 3.52% of the total planned power capacity being added in 2002-07.
NTPC officials are insisting that RIL live up to its commitment to supply the gas. “There will be no out-of-court settlement. We will get gas for our Gujarat projects whenever RIL honours its commitment,” T. Shankaralingam, chairman and managing director, NTPC told Mint. The next court hearing is slated for February-end.
A spokesman for the Mukesh Ambani-led RIL declined to comment on the dispute. Power ministry officials are also of the opinion that RIL should honour its supply commitments.
Both sides face difficult choices in arriving at any reasonable settlement in the face of what has been a sharp escalation in prices of natural gas globally.
Any attempt to find a new supplier would mean that NTPC would have to face gas costs that could be as high as $8 to $10 (Rs 352-440) per million British thermal units (mmbtu). In contrast, RIL had promised gas at $2.97 per mmbtu.
When it secured the bid in 2004, RIL had agreed to offer natural gas at that price in what was billed as a major win, a mega deal to supply NTPC’s Kawas and Gandhar power projects. RIL beat out Petronas-Petronet, which had quoted $4.23 per MMBTU.
Shell and Yemen LNG were among the other losing bidders.
The gas was to fuel expansion of NTPC’s plants that were slated to add1,450MW of power out of the total capacity addition of 41,110MW in the government’s 10th Plan for 2002-07.
Both projects have been delayed because NTPC, unsure of the gas supply, has not begun expansion work at either site.
RIL provided a bank guarantee for Rs20 crore, but never signed the gas sales and purchase agreement as it didn’t agree with NTPC about an unlimited liability clause in the draft agreement.
After its bid was accepted, RIL had sought to cap its liability to around $220 million in case it failed to supply 12 million standard cu.m of gas per day to NTPC over the 17-year life of the contract. NTPC objected to the addition, resulting in the current stalemate.
“RIL had earlier quoted and accepted all our conditions. At that time there was no issue of a financial cap. We had gone for a transparent competitive bidding after which the (letter of intent) was given to RIL, the receipt of which was acknowledged,” said a senior NTPC executive, who did not want to be named.
NTPC, which hasn’t cashed in the bank guarantee of Rs20 crore, filed a suit in the Bombay high court in December 2005 regarding RIL’s failure to sign the gas sales and purchase agreement. RIL had earlier said NTPC’s suit was motivated by other than purely commercial reasons.
P.M. Sayeed, then power minister, had said in Rajya Sabha that RIL was seeking major deviations related to limitation of liability, gas supply and development and production plans. Sayeed has since died.
Former power secretary R.V. Shahi had earlier informed cabinet secretary B.K. Chaturvedi that RIL had indicated that its earlier price quote was no longer valid due to the massive increase in gas prices. But Shahi had also written to his petroleum ministry counterpart M.S. Srinivasan that the dispute was not owing to the price of gas, but over matters such as capping of financial obligations in case of inadequate or no supply of gas.
According to the bid terms and conditions, the gas was supposed to be supplied from RIL’s block in the Krishna-Godavari basin anytime between November 2007 and March 2009.
Reliance’s gas project is under way and commercial production is expected sometime in early 2008.
Even cabinet secretary Chaturvedi had suggested an out-of-court settlement. But faced with a huge increase in the price of gas if it rebids, and the significant delays that have already crept into its expansion plans, senior management at NTPC are adamant they won’t settle for anything other than a court ruling that forces RIL to start supplying the gas as promised.
“We will fight to the finish,” the NTPC executive said.
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First Published: Mon, Feb 12 2007. 03 43 AM IST
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