Govt’s stand on gas pricing rights helps RIL’s claims

Govt’s stand on gas pricing rights helps RIL’s claims

Mumbai: All the gas mined by Reliance Industries Ltd (RIL) from the Krishna-Godavari basin has to be sold to “all consumers" at the state-approved price of $4.20 (about Rs208) per million British thermal unit (mBtu), the Union government said in an affidavit filed in the Bombay high court on Friday.

The government’s stance, as stated in the affidavit, is in line with arguments made by RIL’s legal counsel that the company can price its gas only with approval from the government.

Also Read Government’s affidavit filed in the Bombay HC (PDF)

The document was submitted before a two-member bench that’s hearing a case between Mukesh Ambani-controlled RIL and his estranged brother Anil Ambani’s Reliance Natural Resources Ltd (RNRL) over the pricing of the gas from the basin.

RIL, India’s largest petrochemicals maker and second-largest oil refiner, is set to start production of gas in January from the KG basin, which will have a peak production of 80 million standard cubic metres per day (mscmd). But it has to wait for the legal dispute to be settled before it can sell the output.

RNRL has been laying claim on a portion of the gas reserves at a lower rate, citing a family agreement that formed the basis of a split between the estranged brothers in 2005. RNRL is demanding 28mscmd of gas from the prolific reserves on the country’s eastern coast—discovered by RIL—at $2.34 per mBtu for 17 years.

The affidavit was submitted before justices J.N. Patel and K.K. Tated by additional solicitor general Mohan Parashar, the government counsel who was recently brought into the case.

The production sharing contract (PSC) between the government and RIL states that the contractor has to sell “all natural gas…from the contract area at arms-length prices."

Quoting from this, the government’s affidavit says, “It is clear from this provision that all the gas and not just the share of the contractor or the government shall be sold at a price, which follows from the price formula/basis approved by the government, which in this case, comes to $4.2 per mBtu."

It adds that the price of the gas will be “approved by the government prior to the sale of natural gas to the consumers/buyers" and that “sale at a price less than $4.2 per mBtu is not envisaged as per the eGoM decisions".

There has been a lack of clarity until now on whether the $4.2 per mBtu price, pegged by the empowered group of ministers (eGoM) in September 2007, was to be RIL’s sale price for all buyers or just for the government’s purchase of gas.

In the previous hearing on Tuesday, the Bombay high court had asked the government to clarify its role in pricing the gas.

Agreeing that the latest document produced before the court favoured RIL, its counsel Milind Sathe told Mint, “This is what we have been saying (all along). This supports the arguments that RIL has been making."

RNRL’s counsel Mukul Rohatgi, however, said he didn’t think his company’s case had been weakened.

“We are disputing that (government’s) position," said Rohatgi. “(The) government is drawing its powers from the PSC and we want the court to interpret that, since it gives no such powers to the government."

RNRL wanted to cross-examine ministry of petroleum and natural gas official S.M. Sundaram, who filed the affidavit in court, but the government counsel objected, saying this could be allowed only after procedural requirements were followed.

The document also states that “it was always understood by the parties to this litigation that, under the PSC, ...gas is subject to the approval of price formula/basis of Government of India as well as the gas utilization policy," and “therefore, no third party can suggest a different interpretation to the provisions of the PSC...other than the interpretation" that has been understood by the parties to the contract so far.

Shares of RIL slipped 1.17% to close at Rs1,148.55 on the Bombay Stock Exchange on Friday, while the bellwether Sensex index ended the day 1.58% lower. RNRL’s shares rose by 0.91% to Rs49.75 a share on Friday.

The hearings will resume on 27 November.

Utpal Bhaskar in New Delhi contributed to this story.