Mumbai: Senior executives of Reliance Industries Ltd (RIL) and Reliance-Anil Dhirubhai Ambani Group (R-Adag) have been making frequent trips to New Delhi in the run-up to a 20 July hearing in the Supreme Court of a gas dispute between the two, to meet government officials and journalists, and present their case.
Reliance Industries, controlled by Mukesh Ambani, and Reliance Natural Resources Ltd (RNRL), part of R-Adag which is controlled by his estranged younger brother Anil Ambani, have been fighting a legal battle over the supply of gas from the former’s D6 block in the Krishna-Godavari (KG) basin, off India’s east coast, to the latter’s still-on-paper power plant at Dadri in Uttar Pradesh.
Mukesh Ambani, news agency PTI reported last week, had met Union finance minister Pranab Mukherjee and law minister Veerappa Moily, while Anil Ambani met secretaries in the ministries of petroleum and natural gas, fertilizer, and finance.
Bone of contention: A file photo of KG basin. The apex court’s decision will also affect the fortunes of fertilizer and power firms that have been allotted gas from KG D6 in keeping with the gas utilization policy.
In June, the Bombay high court ruled in favour of RNRL in a case involving the supply of 28 mscmd (million standard cu. m of gas a day) of gas from KG D6 to Dadri for 17 years at a price of $2.34 (Rs114) per mBtu (million British thermal unit).
The legal positions of both companies, interestingly, revolve around the role of the government.
RIL’s stand is that it is merely the operator of the block and that everything else regarding the oil or gas produced, including the price at which it is sold, and the customers to which it can be sold, has to be decided by the government. The government has set a price of $4.2 per mBtu for KG D6 gas and said its use will be guided by the gas utilization policy which essentially provides a list of priority customers for the gas.
The company claims its agreements to supply gas to RNRL have always been conditional to the government’s approval
RNRL’s stand is that RIL has the freedom to market the gas at a price of its choice and sell it to customers of its choice. It further claims that the government prescribed price is for valuation purposes only.
“If they (RNRL) are able to keep the government out of this dispute or even neutralize its stance, it will be quite helpful for them,” said a Mumbai-based analyst with a foreign brokerage on RNRL’s stance. This person, who did not want to be identified, added that this would keep the dispute between the two “a one-on-one fight”.
Officials from both RIL and R-Adag briefed Mint’s editors during their visits to Delhi through extensive so-called deep background chats.
While either side’s anxiety to present its side of the argument is understandable given what is at stake, the Supreme Court’s decision on the case will be significant because it won’t just be about a contractual dispute between two companies.
The decision will affect the fortunes of several fertilizer and power companies that have been allotted gas from KG D6 in keeping with the gas utilization policy. And it could set a precedent on the interpretation of production sharing contracts between the government, the owner of all natural resources in the country, and the operator, the company or consortium given permission to tap that resource. It could also clarify whether the price set by the government for oil and gas under production sharing contracts is for valuation or selling and whether the operators have the flexibility to sell it at a higher price or a lower one.
The position taken by the two companies, analysts say, reflects how crucial—maybe even central—the government’s stance is going to be in the lawsuit.
The gas dispute escalated to the Supreme Court early this month with RIL and RNRL filing cross petitions, each contesting Bombay high court’s mid-June ruling. In that order, the high court had ruled in favour of RNRL and asked the two companies to reach “a suitable arrangement” or turn to their mother for arbitration. Kokilaben Ambani played a significant rule in hammering out a family settlement dividing assets between the two brothers in 2005.
The high court-ordered negotiations collapsed in a fortnight and both RIL and RNRL filed appeals in the Supreme Court. And RIL has already included the government as an “intervenor/respondent” in the case, said spokesperson for the company.
Goldman Sachs’ analysts Nilesh Banerjee, Durga Dath and Karthik Bhat wrote in a 17 June report that the apex court “typically having a broader perspective of cases, could consider the national significance of D6 gas project, rather than focusing only on the terms of the RIL-RNRL gas sales agreement.”
RIL’s petition in the Supreme Court, questions, in at least half a dozen places, the high court’s verdict for asking it to supply gas to RNRL without seeking government approval on price, quantity and tenure and whether doing so could possibly lead to a termination of its contract, besides “setting aside government policies”, referring to the pricing and gas utilization policy.
It has repeatedly expressed its inability to act independent of government’s direction.
RNRL, in its reply to RIL’s petition that names government as an intervenor, said the Mukesh Ambani-run company was trying to portray the dispute as one between RNRL and the government rather than one between RIL and RNRL and that the government had little role to play in the private dispute.
While the ministry of power may not dislike seeing RIL lose its case in the Supreme Court because it mirrors a similar case the company is fighting with the state-owned NTPC Ltd in the Bombay high court, most other ministries echo RIL’s stand.
Union petroleum minister Murli Deora told mediapersons on Sunday that the government had a lot at stake in the dispute. “Gas does not belong to either Mukesh or Anil Ambani. It belongs to the government,” said Deora.
Atul Chaturvedi, India’s fertilizer secretary had earlier written to the petroleum secretary R.S. Pandey that a family settlement should “not over-ride the sovereign right of the government to formulate policies aimed at larger public interest”.
And Andhra Pradesh chief minister Y.S. Rajasekhara Reddy also pitched in to say that the government must decide the price of gas and its buyers.
RNRL maintains that the supply of gas to it won’t hurt fertilizer companies. In a 30 June letter to M.K. Azhagiri, minister for chemicals and fertilizers, the company said that gas production would increase from 80-120 mscmd and be enough to meet everyone’s demand, and that “hence, it is unlikely that the judgement would affect the gas supply to fertilizer companies...even while meeting the RNRL requirement”.
In the Bombay high court, the government had made a submission saying RIL would have to sell the gas at the specified price of $4.2 per mBtu to all buyers as per the utilization policy.
The government’s stand in the Supreme Court will become clearer in the days ahead.