BW Communities

Victory For Anil In Gas Case

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Bombay High Court today handed a stunning victory to Anil Ambani’s Reliance Natural Resources Ltd by upholding its right to gas from Reliance Industries’ wells in the Krishna-Godavari basin at a discount of 44 per cent to the government-mandated price. A division bench of the high court, comprising Justices J.N. Patel and K.K. Tated, ruled that the Anil Ambani group was entitled to 28 million cubic metres of gas a day at a price of $2.34 per million British thermal unit (mBtu). This works out to a 44 per cent discount to the price of $4.20 per mBtu that the government fixed in September 2007. But the legal battle that has raged for almost three years isn’t over, and Mukesh Ambani-owned RIL is almost certain to go in appeal before the Supreme Court. There was no official comment from RIL to the latest setback. The judges ruled that the government’s pricing formula would not apply to assured gas supplies to RNRL. They ordered the warring sides to renegotiate the terms of a disputed gas supply agreement that was reached on January 12, 2006 when both companies were still under Mukesh Ambani’s control. Anil Ambani gained control of the four companies, including RNRL, that were spun out of the Reliance group almost a month later on February 7. Ever since, he has cried foul over the gas supply agreement, eventually going to the courts in November 2006. The two sides have been given one month to hammer out a deal, failing which the Ambani brothers could approach Kokilaben Ambani and ask her to play the arbiter once again. The Ambani matriarch had engineered the truce between the warring brothers on June 18, 2005, which set the ground rules for the carve-up of the Reliance empire. In October 2007, Justice A.V. Mohta had given the two scions four months to renegotiate the gas pact but they couldn’t break the gridlock. No one has any great expectations that they will do so now. In its 324-page order, the division bench relied upon the family memorandum of understanding (MoU) reached in June 2005 that contained details of the gas supply accord between the two groups. The MoU said the tenure of the agreement with the Anil Ambani group would mimic the provisions of RIL’s deal with National Thermal Power Corporation Ltd (NTPC). However, RIL has already repudiated this deal and is battling NTPC in the courts. According to that contract, RIL was to supply gas to NTPC for a period of 17 years. It added that the price specified in the NTPC contract ($2.34 per mBtu) would also apply to the Anil Ambani group. The court noted that the MoU had set an elaborate framework for the gas supply agreement. The MoU has never been placed in the public domain and today’s order provided some nuggets of information on the original deal. The MoU said that NTPC would have the first right to the gas followed by RNRL. If the NTPC contract fell through, the state-owned power utility’s entitlement of 12mmscmd of gas would be added to RNRL’s quota. RNRL would have a claim on all future gas reserves, “including new discoveries of gas from new explorations and/or bids”, the MoU said. It also laid out the sharing arrangement for gas between the two sides. Over and above the assured supply of gas, the two sides would split the option gas in the ratio of 60:40, with 60 per cent going to the elder Ambani and 40 per cent to the Anil Ambani group. The Anil Ambani group can choose to buy gas above its assured supplies, which is why this is called option gas. The price for this gas would be determined by the government’s pricing formula. “There is no specific provision under the production sharing contract (which oil explorers like RIL must sign with the government) to prevent the contractor to sell the gas at a lower price than that fixed by the government,” the court said. The judges felt that RIL had no reason to crib about this because Harish Salve, counsel for the Mukesh Ambani camp, had admitted in court that even at the price of $2.34 per mBtu RIL would make a profit. Finally, the judges said that if the two sides could not reach a new gas supply agreement, the Anil Ambani side could press for damages. It noted that there was indemnity clause in the scheme of demerger to protect the interests of the affected party. It said that if all efforts to reach a new agreement fail, the aggrieved party — read Anil Ambani — could approach the company court to seek a modification of the scheme. Courtesy: The Telegraph