New Delhi: NTPC Ltd, which is fighting a case in the Bombay high court against the Mukesh Ambani-controlled Reliance Industries Ltd (RIL) over the supply of gas from the latter’s D6 block in the Krishna Godavari basin (KG-D6), has upped its ante by quoting from a 2006 communication between the petroleum and power ministries that makes it clear that prior government approval is not required to fix the marketing price of this gas.
This strengthens NTPC’s efforts in lobbying government support for its claim that its contract with RIL is binding.
In a letter reviewed by Mint, dated 17 August to power secretary H.S. Brahma, to garner support for its case from the ministry of petroleum and natural gas (MoPNG), NTPC, which is India’s largest power generation utility, has referred to another communication dated 24 May 2006 from MoPNG to ministry of power (MoP) that stated, “...the government (this ministry) is not a party in the Gas Sales Agreement (GSA) and hence seller and buyer are free to agree upon terms and conditions of GSA.”
The letter from MoPNG also noted that RIL had not presented any proposal seeking approval of the gas price for supply to NTPC.
This letter was written by former petroleum secretary M.S. Srinivasan to former power secretary R.V. Shahi in response to a suggestion that “while taking a decision about the gas price in D6 block, this ministry (MoPNG) should take into account the gas price already determined between NTPC and RIL on the basis of international competitive bidding system”.
The price of gas from KGD6 was fixed on 12 September 2007 by an empowered group of ministers (e-GoM) at $4.2 (Rs204.54 today) per million British thermal unit (mBtu).
Srinivasan had further added in the letter: “This ministry would be bound by the contract (production-sharing contract, or PSC), while determining gas price for the purpose of valuation of various elements, such as cost petroleum, profit petroleum and royalty, etc.”
This position is contrary to one expressed by Murli Deora, the then petroleum minister, in Parliament on 6 August 2009. While replying to a debate in the Rajya Sabha on the availability of gas to the power sector, Deora said: “It must also be noted that the contractor (RIL) has made no proposal on the price formula for determining the pricing of supply of gas to be made to NTPC, which is required under the PSC. This process not having been undertaken, e-GoM’s approved price is applicable.”
While Srinivasan did not respond to phone calls or to a message left on his cellphone, Shahi told Mint, “In May 2006, the power ministry had taken up the matter with MoPNG that they should help solve the problem of NTPC, so that they (NTPC) get gas at the rate which had been agreed by RIL. Now, that the matter is in the court, it is advisable that we await the decision of the court.”
The lawsuit between NTPC and RIL in the Bombay high court dates back to December 2005, with the point of contention being the existence and terms of a valid contract between the two. NTPC claims there is one in which RIL promised to supply 12 million standard cu. m a day (mscmd) of gas for the expansion of its Kawas and Gandhar power plants, both in Gujarat, for 17 years at a price of $2.34 per mBtu. RIL claims there is no contract.
Earlier in the ongoing saga, the government had intervened in the Supreme Court case between RIL and Reliance Natural Resources Ltd (RNRL), a firm controlled by Ambani’s estranged younger brother Anil Ambani, over gas supply from KGD6. It had also intervened in the same case when it was being fought in the Bombay high court. Both interventions have been seen by analysts as weakening NTPC’s case.
R.S. Sharma, chairman and managing director of NTPC, declined comment.
While petroleum secretary R.S. Pandey could not be reached, questions emailed to Deora’s assistant remained unanswered at the time of filing of this story.
Referring to the 24 May 2006 communication from MoPNG to MoP, a senior power ministry official who did not wish to be identified, said, “What to do? Someone says something, someone another.”
However, power minister Sushil Kumar Shinde played down the tension between the two ministries. “I don’t think there is any difference between petroleum ministry and power ministry on the RIL gas dispute,” he told reporters on the sidelines of a function in New Delhi early in the day.
NTPC wants the petroleum ministry to ensure that NTPC’s rights for 12 mscmd of KGD6 gas at $2.34 per mBtu is protected and that the petition filed by the petroleum ministry in the Supreme Court does not jeopardize this. In its letter, it has also drawn attention about e-GoM’s decision being “without prejudice to the NTPC versus RIL case”.
Mint had reported on 20 August about how the government proposes to file an affidavit in the Supreme Court to protect the interest of NTPC.
RNRL and RIL are fighting over the validity of a family agreement between the two Ambani brothers for the supply of gas from RIL’s D6 block to a power plant being set up by Reliance Power Ltd, an RNRL associate.
A spokesperson for the Reliance-Anil Dhirubhai Ambani Group, of which RNRL is a part, did not respond to email queries asking for comment.
“As a law abiding and responsible corporate citizen, Reliance Industries refrains from commenting on issues which are sub judice,” an RIL spokesperson said.