Ambani brothers’ gas pricing dispute may be over soon

By IANS

Mumbai : Mukesh Ambani-owned Reliance Industries Ltd (RIL) has received a shot in the arm with the Bombay High Court allowing the government to go ahead with gas pricing, even as all eyes are on Thursday's hearing on the dispute over the firm's gas allocation.


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RIL last Thursday announced the discovery of oil and gas in the Cauvery basin, off the eastern coast of India. That was RIL's second major success in deep waters after its achievement in the Krishna-Godavari (KG) basin.

However, corporate observers are waiting for Thursday's hearing on the final decision on the interim order of the Bombay High Court restraining RIL from allocating any of the 80 mmscmd (million standard cubic metres per day) of gas discovered in the KG basin.

The court order relates to a dispute over RIL's sale of gas from the large discovery in the KG basin to Reliance Natural Resources Ltd (RNRL), run by Mukesh's estranged brother Anil Ambani, for the latter's power projects.

RNRL says it has usage rights over a large quantity of gas from the field and went to court against RIL last year alleging non-fulfilment of certain conditions.

RIL refutes the allegations and has sought a stay on the court's interim order.

Corporate sources here said that after last week's clearance by the Bombay High Court, the government has sought the attorney general's views on the legal implications of a market-driven gas pricing formula in the backdrop of the court's interim order restraining RIL from allocating any of its gas.

RIL's gas is scheduled to start flowing from June 2008 and delays in gas sales deeds could derail the whole process.

"The government will move into the allocations once the pricing policy is given shape. The government too does not want any further delay in the process," said a corporate source here Tuesday.

"Last Wednesday's court decision clearly states that the earlier interim orders do not prevent the centre from deciding on gas pricing."

RIL counsel Harish Salve said: "RNRL plans to trade the gas with its affiliates as they do not have any ready power plant. RNRL's proposed 8,000 mw power plant at Dadri in Uttar Pradesh is still not functional."

Countering the argument, RNRL counsel Mukul Rohatgi said: "We have already received the mandatory environmental clearance for the power project at Dadri, being set up at the cost of Rs.400 billion. But we have not yet been able to tie up funds in the absence of any firm gas supply commitment from RIL.

"We have sought changes relating to the limited liability clause in the gas sale signed between RNRL and RIL in January 2006."

The liability clause refers to damages to be made by either party in case of a default.

The sources said that as per the January 2006 agreement, RIL would have to pay an amount equal to six months' fuel supply if they walked out of the agreement.

Opposing this, RNRL has appealed in the Bombay High Court that there should not be any cap on the liability.

In May this year, RIL invited power and fertiliser companies to participate in a price discovery programme for the 80 mmscmd to be sold from its KG field.

RIL has approached the government to approve its pricing mechanism to sell gas at $4.6 per mmbtu (million metric British thermal unit) – the price arrived by bids from 10 companies, five each from the fertiliser and power sectors.

However, following the RNRL petition, the court asked RIL not to enter into any negotiations with third parties over the sale of gas till the dispute was resolved. RIL then appealed to a division bench for an interim stay.

 

 

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