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RIL-RNRL gas row intensifies as production date approaches

RIL-RNRL gas row intensifies as production date approaches
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First Published: Thu, Jan 15 2009. 10 21 PM IST

 Strong words: Harish Salve, who is representing Reliance Industries, accused Reliance Natural Resources of producing ‘false’ documents. Ashesh Shah / Mint
Strong words: Harish Salve, who is representing Reliance Industries, accused Reliance Natural Resources of producing ‘false’ documents. Ashesh Shah / Mint
Updated: Thu, Jan 15 2009. 10 21 PM IST
Mumbai: The decibel level in the legal battle between Reliance Industries Ltd, or RIL, and Reliance Natural Resources Ltd, or RNRL, got a little higher and the pitch a little shriller on Thursday as the date for pumping gas from the Krishna-Godavari (KG) basin approaches.
Strong words: Harish Salve, who is representing Reliance Industries, accused Reliance Natural Resources of producing ‘false’ documents. Ashesh Shah / Mint
Lawyer Harish Salve, who is representing the Mukesh Ambani-led RIL, accused RNRL of producing “misleading”, “dishonest”, and “false” documents in court.
For its part, sibling Anil Ambani’s RNRL struck out at the Union government in an affidavit filed in the Bombay high court, saying it “has no right as an intervenor to lead any evidence or file any affidavits”. RNRL was responding to a filing by the government on Tuesday that all parties are supposed to buy gas from the KG basin at a price fixed by the government.
The escalation comes at a time when RIL is weeks away from producing natural gas from its Krishna-Godavari D6 deep-sea block off the eastern coast. In an affidavit on Wednesday, RIL had mentioned 15 February as the “likely date” for it to start pumping natural gas, and that “now the laying of equipment is complete, the connectivity is more or less complete and it is anticipated that the system would be...commissioned”.
This would mean that RIL has less than a month to tie up deals with buyers; it is already embroiled in a separate court case with state-owned power generator NTPC Ltd, with which it has signed a deal to supply gas at $2.34, or Rs115 now, per million British thermal unit (mBtu).
RNRL, which is seeking a stake in the total output of natural gas and at the NTPC price that is 45% less than the price of $4.20 per mBtu set by the government, said that if the utility firm—“persuaded by the government of India’s voting power”—bought gas at the government price, it would have to fork over Rs25,000 crore more.
The Anil Ambani company is seeking rights to 28 million metric standard cubic metres of gas a day (mmscmd) for 17 years at a concessional rate of $2.34 per mBtu, citing a family memorandum of understanding (MoU) based on which the Reliance group was divided between the two brothers in 2005.
RIL is disputing this claim before a two-member bench of the Bombay high court.
RNRL’s plea for gas at the lower cost is, ironically, based on an NTPC tender offer in which RIL, in its winning bid, had offered to sell gas at the lower price.
In 2007, however, a so-called empowered group of ministers, or EGoM, fixed the gas price at $4.20 per mBtu, a price that the government affidavit says is binding on all buyers.
Calling the government filing “mischievous and misleading and mala fide”, RNRL’s filing said that the RIL-NTPC agreement was “an arm’s length contract and neither the ministry nor the EGoM nor the government…can modify it”.
It also added that EGoM had “no statutory powers” to decide any dispute between RIL and RNRL and “RIL has complete freedom to market gas” on prices negotiated between parties after the government takes its share.
RIL’s lawyer Salve on Thursday contended that RNRL had misquoted the MoU in the pleadings and that the gas supply agreement was not between RIL and RNRL at all, but with Reliance Energy Ltd, or REL (now called Reliance Infrastructure Ltd).
Reading from select portions of the MoU submitted by RNRL to the court, Salve claimed that the words REL were “deliberately changed” to Reliance-ADA (Anil Dhirubhai Ambani) Group at the beginning of a paragraph while the rest of the paragraph mentions REL.
Hearings will continue on Friday.
RIL signed MoUs with several power and fertilizer companies in mid-2008 and is believed to be in touch with potential buyers in sectors that have been identified in the government’s so-called gas prioritization policy: existing fertilizer, power and petrochemical plants followed by city gas distribution projects.
However, under a current stay on the sale of the gas, RIL is prohibited from selling to any party other than RNRL and NTPC Ltd.
Salve had on Wednesday voiced concern over the stay, saying it should be modified or lifted because contracts with suppliers are required to be signed in the next three weeks.
Reacting to the 15 February date, a sector analyst with a foreign brokerage said, “It is a near-enough date and gives certainty on the issue. However, the court case was always an overhang on the project and continues to be so.”
The analyst added that gas from the D6 well, besides giving a $6 billion benefit to RIL shareholders, could substitute for crude oil as feedstock in its refineries. “This will add $0.5-1 per barrel to RIL’s gross refining margins, depending on the price of crude,” he said.
The entire KG D6 gas basin, valued at $15.37 billion according to a 12 January Citigroup report, will produce a peak output of 80 mmscmd of gas.
RIL’s shares dipped 2.95% on Thursday on the Bombay Stock Exchange to close at Rs1,143.35 while RNRL declined 4.52% to close at Rs51.80, a day after speculation of an out-of-court settlement on the gas dispute buoyed scrips of both companies. The bellwether Sensex fell 3.3% on Thursday
RIL strongly denied the rumour, and has demanded a retraction and an apology from Avendus Capital Pvt. Ltd, which had earlier put out a report saying Mukesh Ambani was taking over RNRL and that Anil Ambani was getting cash and control over Reliance Retail Ltd in return.
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First Published: Thu, Jan 15 2009. 10 21 PM IST