RIL calls family MoU worthless; criticizes govt on gas policy

RIL calls family MoU worthless; criticizes govt on gas policy
PTI
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First Published: Thu, Oct 22 2009. 05 05 PM IST
Updated: Thu, Oct 22 2009. 05 05 PM IST
New Delhi: Reliance Industries termed as worthless the MoU signed by its chairman Mukesh Ambani and his brother Anil and told the Supreme Court that the government “unreasonably” snatched its freedom to market gas.
On the third straight day of hearing on the gas supply dispute between group firms of the two brothers, the Bench headed by chief justice K G Balakrishnan asked if the MoU, signed in 2005 for dividing Reliance’s assets including gas, was placed before RIL shareholders.
To this, RIL senior counsel Harish Salve said the MoU was not placed before shareholders, board or creditors and that it was more of a private family arrangement rather than a company arrangement.
“The MoU is not worth the paper on which it is written as far as RIL is concerned,” he said.
RIL also came down heavily on the government for snatching away its marketing and pricing freedom, saying: “We had assumed marketing freedom when we divided gas in 60:40 ratio between the two groups (in the GSMA signed in 2006).”
Referring to the government, in 2007, giving itself the power to approve price and fix consumers for gas, Salve said: “Government approval of price is an unreasonable clause.”
He said RIL had vehemently protested against the government taking away its freedom, whereas Anil Ambani group had sought regulation of fuel sale through a gas utilisation policy in 2007.
Salve said MoU was not placed before the shareholders, although board directors had knowledge of some parts of the MoU in their personal capacities but they had not approved the same.
When the bench asked if there is no arrangement (MoU), would the division be valid, the RIL counsel said only some parts of the MoU were part of the demerger scheme. “If a demerger scheme does not disclose vital bearing on the company, it cannot be considered part of the statutory scheme.”
The court told RIL that it’s argument on provisions in PSC was highly technical and that “we are not here to interpret PSC as you are not fighting against the government. It is just a background material. PSC was (signed) earlier to MoU.”
RIL is fighting a case against Anil Ambani group firm RNRL, which is seeking gas at a price of $2.34 per mmBtu as had been committed in the family MoU of 2005. The company says it cannot sell gas at a price less than the government approved rate of $4.20 per mmBtu and is bound by the Gas Utilisation Policy.
When the bench asked if the Gas Utilisation Policy was notified like the Industrial Policy, Salve said it was not and customers/sector identified in the same were passed on to RIL in form of instructions.
The Gas Utilisation Policy was formulated by an Empowered Group of Ministers (a sub-committee of the Cabinet) and the policy was part of the minutes (now part of court records).
On the third day of hearing, Salve told the apex court that RIL will take longer to recover investments it has made in the gas field if it is forced to sell fuel at lower rates.
RIL will take 5-5.5 years to recover the $5.8 billion investment made in the KG-D6 gas field if it sells the fuel at government-approved price of $4.205 per mmBtu, Salve said.
However, if it is forced to sell gas at lower rate of $2.34 per mmBtu, which RNRL contends that RIL had committed in the 2005 Ambani family agreement, the cost recovery would be over seven years.
Salve said Anil Ambani Group firm’s Samalkot power plant in Andhra Pradesh was buying gas from KG-D6 at government- approved rates of $4.2 per mmBtu but was making hue and cry for other plants.
RIL, he said, was being forced to buy liquefied natural gas (LNG) from spot market at price of over $9 per mmBtu as the government has not yet allocated any gas from KG-D6 for its own captive use.
NTPC, which has not yet begin drawing gas from KG-D6 despite being allocated 2.67 million standard cubic meters per day, is buying imported fuel at $9-14 per mmBtu.
Salve said it was not possible for RIL to supply 28 mmscmd gas to RNRL for 17 years as the peak output from the field will not last for more than seven years.
He said the company cannot accelerate or decelerate the rate of production as such practices damage the reservoir and the ultimate recovery.
RIL would continue its arguments when the court resumes hearing of the matter on 27 October.
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First Published: Thu, Oct 22 2009. 05 05 PM IST