RIL, govt’s stand in gas spat challenged

RIL, govt’s stand in gas spat challenged

New Delhi: Anil Ambani’s Reliance Natural Resources Ltd (RNRL) on Wednesday asked the Supreme Court to dismiss the petition filed by Mukesh Ambani’s Reliance Industries Ltd (RIL) and argued that the government had no role in determining either the price or the allocation of gas at the time when a gas supply agreement was reached by the two companies in 2005.

RNRL’s reply is its first detailed one to the petition filed by RIL in the Supreme Court, appealing a Bombay high court decision in favour of the former.

The two firms have been slugging it out in the courts over the pricing and supply of gas from RIL’s D6 block in the Krishna-Godavari (KG) basin.

RNRL’s appeal is also seen by analysts as a way to neutralize potential fallout from the government’s intervention in the ongoing dispute, which reiterates the state’s sovereign right to decide the pricing and allocation of gas.

RIL and RNRL had approached the Supreme Court on the verdict of the high court on 15 June that asked the two to sign a “suitable arrangement" for supply of gas. RIL appealed the judgement while RNRL wanted it expedited. The Supreme Court has refused to stay the high court ruling.

In its reply to the special leave petition, filed on Wednesday, RNRL claimed RIL was changing its stand on the memorandum of understanding (MoU) between the estranged Ambani brothers that had set the rules for the demerger of the Reliance businesses between them. The MoU was also the basis on which the gas supply arrangement was inked, RNRL added.

The reply further claimed that this MoU was not affected by the gas utilization policy of the government. This is because the MoU included a “a valid, binding and enforceable commitment" to supply gas and was arrived at three years before the government announced its gas utilization policy in 2008, it said.

In its reply, RNRL also said that according to the production-sharing contract (PSC) executed between RIL and the government, the former has complete marketing freedom for the sale of gas within India. “The marketing freedom would include within its scope the freedom to sell and/or deal with the gas on such terms and at such price that RIL seems fit and proper. The government has no role to play either in the utilization of gas or in fixation of price," it added.

Even as it questioned the government’s right to intervene in fixing the price and utilization of gas, RNRL claimed “RIL has wrongfully and mischievously sought to add government approval as a condition precedent of the contract with RNRL".

Interestingly, the government, in its revised petition in the Supreme Court filed on 1 September, had restricted itself to the issue of its sovereign right to decide the pricing of the natural resource.

RNRL, in its response, clarified that it has not questioned the government’s ownership of gas. The “government being an owner of gas fields is also bound by the terms of the production-sharing contract and under the production-sharing contract, ownership of gas produced is shared with the contractor/RIL," it said. “The company court and the division bench had given directions only with regard to the gas that belongs to RIL and has not given any direction in relation to the gas that belongs to the Union of India."

Additional solicitor general and government counsel Mohan Parasaran said, “Marketing freedom is regulated by the production-sharing contract and by the decision taken by the empowered group of ministers. We will give a detailed reply in the court."

While RNRL has sought the apex court’s intervention in a special leave petition for the immediate supply of 28 million standard cu. m a day (mscmd) of gas from KG D6 at $2.34 (Rs113.49) per million British thermal unit (mmBtu) for a period of 17 years, RIL, in its affidavit, has opposed this, saying the price is 44% lower than that mandated by the government and it cannot supply gas at a price not approved by the government and to a user not listed in the country’s gas utilization policy.

RNRL quoted the petroleum and natural gas ministry’s responses in Parliament, which said the government does not fix the price of gas and its role “is to approve the valuation of gas for the purpose of determining government stake". However, these responses were made before a ministerial group on 12 September 2007 decided to price the gas produced by RIL from its KG-D6 block at $4.2 per mmBtu.

RNRL said RIL was “seeking to misinterpret the terms of the PSC to suggest that any sale of gas has to be in accordance with the gas utilization policy". The firm said it is “utterly false to suggest that the sale of gas has to be as per gas utilization policy that comes in the year 2008, that is, five-six years later to what was referred to in Article 21 of the PSC."

An external spokesperson for RIL declined comment because the case is before the court. Independent lawyers declined to comment as they did not have access to the reply filed by RNRL.