Court asks state to clarify its role in pricing of RIL gas

Court asks state to clarify its role in pricing of RIL gas

Mumbai: The Bombay high court on Tuesday asked the government’s counsel to explain the role of the state in pricing Reliance Industries Ltd’s (RIL) gas from the Krishna-Godavari (KG) basin.

A two-judge bench comprising justices J.N. Patel and K.K. Tated resumed hearing a case between the Mukesh Ambani-led RIL and the Anil Ambani-run Reliance Natural Resources Ltd (RNRL) over the supply of gas.

The bench asked government counsel T.S. Doabia to clarify the government’s view on the extent of its role in pricing gas from the country’s east coast, where the KG basin is located.

The court also sought clarifications on the scope of Article 21.6 over the production sharing contract (PSC) signed between the contractor, RIL in this case, and the government, which owns the country’s natural resources.

Article 21.6 requires the contractor to seek government approval for valuing the gas. But it’s not clear whether the clause is to determine the price for the government’s share in the river basin output, or whether the government has to approve the sale price of all the supply contracts RIL enters into.

RNRL says it is entitled to 28 million standard cubic metres per day (mscmd) of KG basin gas for 17 years at $2.34 (Rs111.38) per million British thermal unit (mBtu) in keeping with an agreement it claims it has with RIL.

The government-specified price for the gas is considerably higher at $4.2 mBtu.

The court has also asked for a ministry official to be present during the hearing when it resumes on Friday.

The Union government was allowed to implead in the case in October.

RIL’s plan to start producing gas from the prolific river basin from January depends on the outcome of this lawsuit, so it can sign supply agreements for selling the gas.

Currently, there is an injunction on the sale of this gas to third parties.

The government has filed a plea in the court for vacating the stay order.

On 2 October, Union minister for petroleum and natural gas Murli Deora had told the Rajya Sabha in response to a question on the price of KG basin gas, “The production sharing contract provides for pricing of gas on the basis of sales on arms length principles. The formula or basis on which the prices shall be determined for the purpose of determining the government take is required to be approved by the government prior to sale of natural gas to the consumers/buyers."

Separately, state-run NTPC Ltd and RIL are fighting a case similar to the one between RIL and RNRL in the same court. However, the government hasn’t impleaded itself in that case.