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RIL signs gas supply accord with RNRL

RIL signs gas supply accord with RNRL
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First Published: Sat, Jun 26 2010. 12 08 AM IST

Graphic: Paras Jain / Mint
Graphic: Paras Jain / Mint
Updated: Sat, Jun 26 2010. 12 08 AM IST
Mumbai: Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL) signed a revised gas supply master agreement (GSMA) on Friday, which, subject to approval from the government, will give the latter access to the fuel it badly needs for an ambitious power plant.
The agreement was “pursuant to and in compliance with the directions and orders contained in the judgment of the Honourable Supreme Court”, the two companies said in identical releases on Friday. The agreement is compliant with the gas utilization policy of the Union government and the decision of the empowered group of ministers, RIL said.
The accord follows the recent rapprochement between the Ambani brothers Mukesh and Anil, who had been feuding over various issues, including the price of gas that RIL will supply to RNRL.
RNRL, the gas trading unit of the Reliance-Anil Dhirubhai Ambani Group (R-Adag), said the company “will now take appropriate steps requesting the government of India for expeditious allocation of natural gas to facilitate implementation of the same”.
Graphic: Paras Jain / Mint
While the official communication from both companies stopped short of outlining the terms of renegotiation, a source close to R-Adag said that it would receive 28 million standard cu. m. per day of gas from the Krishna-Godavari (KG) basin, being operated by RIL, at a price of $4.2 (Rs195.30) per million British thermal unit (mmBtu) for a period of 17 years.
A person familiar with the development said, however, that the agreement signed on Friday only entailed a commitment from RIL to supply gas at the terms and conditions fixed by the Union government, as and when these are set.
Both persons spoke to Mint on condition of anonymity.
Although it wasn’t immediately clear when RIL would start supplying gas to RNRL, RIL chairman Mukesh Ambani had told shareholders during the annual general meeting of the firm on 18 June that “as and when the power plants of Adag are ready to receive gas, we would commence supplies to them subject to government granting allocations to these plants in the same manner as we do to all other plants to whom government has allocated gas from the KG D6 gas field”. Analysts said that Friday’s development had little significance until it received government sanction.
“The signing of the agreement is not significant by itself as the government is yet to allocate the gas to RNRL,” said Arun Kejriwal, director of Kejriwal Research and Investment Services. “Based on what the government has said so far, the implication appears to be that gas being a scarce natural resource would only be available for manufacturing purposes as and when the power plant being built by Reliance Power is ready to receive the gas.”
Reliance Power Ltd runs the power generation business of R-Adag and is setting up a 7,480MW gas-based plant at Dadri in Uttar Pradesh.
An analyst with an international audit and consulting firm said the price was as expected “as that was the government-stipulated level”.
The analyst, who didn’t want to be named, stated that the revised GSMA had no bearing on RIL as it did not matter who bought the gas from the company as long as it got the right price for it.
“However, whether RNRL would get the quantity of gas it wants remains to be seen as new gas-based power plants figure low on the priority list of the government as it has plans for thermal ultra mega power projects and other entities such as fertilizer plants are also in queue to receive gas,” he said.
Giving a decisive verdict on a four-year-old gas dispute, the Supreme Court on 7 May had stated that the gas-sharing agreement signed by the brothers during a family settlement that divided the Reliance empire was not binding “legally and technically” and asked the two sides to renegotiate GSMA in line with government regulations, as the KG basin gas was recognized as a sovereign asset. The two companies were given a timeframe of 14 weeks from the date of the judgement for renegotiations.
As per the original family settlement, RNRL was to receive gas from RIL at a price of $2.34 per mmBtu, but the latter said it would be unable to supply the fuel at a price lower than that mandated by the government.
The share prices of RIL and RNRL outperformed the Sensex, the benchmark equity index of the Bombay Stock Exchange, on Friday. RIL gained 1.14% to Rs1,063.25, while RNRL rose 3.29% to Rs65.95, gaining the most among the listed R-Adag firms. The Sensex shed 0.88% to close at 17,574.53.
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First Published: Sat, Jun 26 2010. 12 08 AM IST