SC seeks explanation for Reliance gas deal

SC seeks explanation for Reliance gas deal
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First Published: Tue, Jul 21 2009. 12 37 AM IST
Updated: Tue, Jul 21 2009. 12 37 AM IST
New Delhi/Mumbai: The ongoing legal spat between the estranged Ambani brothers took a significant turn, with the Supreme Court (SC) on Monday asking why a private gas supply pact between the two brothers that has led to a prolonged legal battle should not be scrapped.
The court made no final ruling and set a 1 September date for the next hearing in the battle between the billionaire Ambani brothers in which the government wishes to intervene. While the court didn’t rule on the government’s intervention, its question on the scrapping of the deal does seem to set the stage for this.
The government had, in a petition filed before SC on Saturday, made a case for scrapping the gas-supply agreement between Mukesh Ambani, who controls Reliance Industries Ltd (RIL), and brother Anil Ambani, who heads Reliance Natural Resources Ltd (RNRL).
While the lawyer representing Anil Ambani expressed his reservations on the court’s decision, analysts argued it could be a setback for RNRL’s legal case.
RIL shares rose 5.03% to Rs2,030.65 each on the Bombay Stock Exchange. RNRL shares lost 2.65% at Rs80.75 each. The Sensex ended at 15,191.01 points, 3.03% higher.
The issue reached SC’s three-judge bench headed by Chief Justice K.G. Balakrishnanafter RIL and RNRL moved the apex court against the verdict of the Bombay high court on 15 June, which had asked them to sign a “suitable arrangement” for supply of gas. While it did not stay the high court’s ruling, there were petitions by the government and firms such as Vemagiri Power Generation Ltd and GVK Power and Infrastructure Ltd, which are entitled to get gas from RIL’s D6 block of the Krishna-Godavari (KG) basin.
While RNRL has sought SC’s intervention for immediate supply of 28 million standard cu. m. a day (mscmd) of gas at $2.34 (Rs113.26) per million British thermal unit (mBtu) for 17 years, and restriction of 40 mscmd supply to any other firm, RIL has opposed grant of interim relief sought by RNRL. The price demanded by RNRL is 44% lower than the government-specified price.
The government in its petition filed with the court on 18 July said, “Knowing fully well that gas does not belong to them and that the contracting companies are bound by the PSC, the respondents have appropriated, through the MoU, in a surreptitious and unauthorized manner, the entire gas treating the same as their personal and family property.” PSC is the production sharing contract, while MoU is a memorandum of understanding.
The government had withdrawn its affidavit to the high court in December, which had stated that “all gas” would be sold at the approved price of $4.2 mBtu, the same position as RIL has taken. The Centre withdrew after the counsel for RNRL sought to cross-examine S.M. Sundaram, undersecretary in the ministry for petroleum and natural gas, who had filed the affidavit.
The Centre has asked SC to allow RIL to sell gas to users other than RNRL. “The government role in this case is not conducive to public interest,” Ram Jethmalani, a lawyer for RNRL, said after the hearing.
Analysts were more precise. “Based on today’s events, there is anticipation that Reliance Industries will be the beneficiary,” said D.D. Sharma, senior vice-president at Anand Rathi Securities. “One needs to look at the share prices prior to the Bombay high court order in June. Reliance (Industries) stock has seen losses since then. I expect the situation to be reversed now.”
While petroleum and natural gas minister Murli Deora declined comment, petroleum secretary R.S. Pandey said, “We for the first time got to know from the Bombay high court judgement that all volumes beyond 28 mscmd committed to RNRL and 12 mscmd to NTPC were divided between RIL and RNRL in 60:40 ratio.”
Mint reported on 19 June about the judgement, quoting the secret MoU, suggesting that the Reliance-Anil Dhirubhai Ambani Group (R-Adag) will have a first right of refusal on all future gas discoveries by RIL, though at market prices.
“We have so far not taken any action against RIL as it has so far not done anything in contravention to the gas pricing and utilization policy as derived from production sharing contract... I cannot today say that no action will be taken (in future),” Pandey added.
A senior petroleum ministry functionary, who did not want to be identified since the case was sub judice, said, “I do not understand how they signed the MoU for the gas. It belongs to the government.”
SC also issued notices on the applications filed by customers of RIL—Gautami Power Ltd, Vemagiri Power Generation and GVK—seeking to intervene in the gas supply dispute the firm has with RNRL.
“Why are these power firms complaining now? They had entered into gas supply agreements knowing it was contingent on the final outcome of the lawsuit between RIL and RNRL,” said a Mumbai-based analyst with a domestic brokerage, who felt the issue has become “a show of strength” and increasingly politicized.
Questions emailed to RIL and R-Adag spokespersons remained unanswered. Meanwhile, the issue was raised in the Rajya Sabha when Tapan Kumar Sen of the Communist Party of India (Marxist) said natural resources “cannot be held hostage” to private firms. He said the government should nationalize the distribution and marketing of natural gas, including that of the KG basin.
utpal.b@livemint.com
Reuters and PTI contributed to this story.
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First Published: Tue, Jul 21 2009. 12 37 AM IST