9459

NTPC fears gas price hike may affect case with RIL

NTPC is worried that a recent decision to double gas price may have damaged its case against RIL over gas supply
Comment E-mail Print Share
First Published: Wed, Jul 03 2013. 11 50 PM IST
The price of gas produced at RIL’s deepwater KG-D6 field off the east coast was fixed at $4.2 per mmBtu by an eGoM on 12 September 2007 till 2014.
The price of gas produced at RIL’s deepwater KG-D6 field off the east coast was fixed at $4.2 per mmBtu by an eGoM on 12 September 2007 till 2014.
Updated: Thu, Jul 04 2013. 11 19 AM IST
New Delhi: State-run NTPC Ltd is worried that the government’s recent decision to double the price of gas produced in the country may have done irreparable damage to its case in the Bombay high court against Reliance Industries Ltd (RIL) over the supply of gas from the latter’s D6 block in the Krishna-Godavari (KG) basin.
“Our case was weakened the day government agreed on the price of $4.2 per mmBtu (million metric British thermal units). Now pricing at $8.4 per mmBtu defeats the case’s purpose. However, we are still pursuing the case,” said a top NTPC executive who didn’t want to be named due to the sensitive nature of the issue.
The lawsuit between NTPC and RIL dates back to December 2005, the point of contention being the existence of a contract between them and its terms. NTPC claims there is a contract in which RIL promised to supply 12 mcmd (million cubic metres a day) of gas for the expansion of the Kawas and Gandhar plants for 17 years at $2.34 per mmBtu. RIL says there’s no such contract. The last hearing in the case took place in September 2010.
“There will be impact on our case with the new price. Even earlier we had said that increasing gas price to $4.2 per mmBtu would have an impact on the case. The power ministry took up the issue with the eGoM (empowered group of ministers). This time the impact’s magnitude will be higher. However, we are still pursuing the case on a regular basis,” said another NTPC executive who also didn’t want to be identified.
“We have only been filing affidavits,” said a third NTPC executive requesting anonymity.
The government raised the price at which natural gas will be sold to producers of power, fertilizer, minerals and steel, delivering a potential boost to the revenue of gas producers including the Mukesh Ambani-led RIL and state-run Oil and Natural Gas Corp. Ltd (ONGC). The price increase is to take effect from 1 April next year.
T. Sankaralingam, former chairman and managing director, NTPC, said, “The case will be impacted, if the government doesn’t exempt this particular contract.”
R.S. Sharma, former chairman and managing director of NTPC and head of the power committee of the Federation of Indian Chambers of Commerce and Industry (Ficci) lobby group also said the decision would have an effect on the case.
“This new price will be leveraged to drive home the point that this is the price determined by the government of the day,” said Sharma, who is also the managing director of Jindal Power Ltd.
The price of gas could go up to $8.4 per mmBtu from $3.5-5.73 now. The price of gas produced at RIL’s deepwater KG-D6 field off the east coast was fixed at $4.2 per mmBtu by an eGoM on 12 September 2007 till 2014.
An NTPC spokesperson said, “The last hearing on the case was held in September 2010. We are pursuing the case.” A spokesperson for RIL declined to comment.
The Supreme Court had decided in May 2010 that Reliance Natural Resources Ltd (RNRL), a part of the Reliance Group led by Mukesh Ambani’s brother Anil Ambani, would not get access to gas from fields being developed by RIL at a discount.
While RNRL was seeking the gas at the same price as NTPC, the state-owned utility’s executives maintained that the case in the high court was different from the one RIL and RNRL fought in the apex court.
The legal community is divided on the issue. Kaviraj Singh, managing partner of Trustman & Co., said that based on his understanding of the agreement as gathered from various sources, RIL cannot increase prices.
Mahesh Jethmalani, senior advocate in the Bombay high court, agreed. “RIL must honour the contract at the price at which it was fixed and there’s no question about it,” he said.
Dhirendra Negi, partner at J. Sagar Associates, pointed out that as per the Supreme Court order, pricing is the government’s prerogative and entities cannot negotiate a price against government policy.
“Most likely NTPC will have to pay more,” he said.
NTPC operates seven power plants fuelled by gas or liquid fuel with a total installed capacity of 3,955MW. It also runs a gas-based plant through a joint venture.
Hemant Sahai, managing partner, HSA Advocates, said NTPC’s hardship in the event of an adverse verdict may be short-lived as prices aren’t fixed and the government may revise them again. “Meanwhile, a possible argument for NTPC could be that despite the price hike, the contractual formula must be relied on as laid down in the agreement. RIL, on the other hand, must prove that it is entitled to the administered price or that laid down in the MoU, whichever is more profitable. Thus, the scenario might alter for both parties and the current price determination is only a transient phase,” Sahai said.
Comment E-mail Print Share
First Published: Wed, Jul 03 2013. 11 50 PM IST
blog comments powered by Disqus
  • Wed, Aug 20 2014. 07 26 PM
  • Wed, Aug 13 2014. 06 09 PM
Subscribe |  Contact Us  |  mint Code  |  Privacy policy  |  Terms of Use  |  Advertising  |  Mint Apps  |  About HT Media  |  Jobs
Contact Us
Copyright © 2014 HT Media All Rights Reserved