KG Gas now in Supreme Court

The issue of sharing the spoils from the gas rich KG basin has now reached the country’s Apex court. After trying all possible interventions in the acrimonious family separation — media, mediators and mother, it is now the turn of the bench headed by the nation’s Chief Justice KG Balakrishnan to decide on perhaps the most contentious case in the family dispute.

The Supreme Court Bench of the Chief Justice, KG Balakrishnan, Justice P Sathasivam and Justice JM Panchal also issued a notice to the Centre, cited as an intervener apart from sending notice to Mukesh Ambani-led Reliance Industries, Anil Ambani-run Reliance Natural Resources Ltd. While issuing notice to the two companies and the Ministry of Petroleum and Natural as an intervener, the Bench headed by Chief Justice Balakrishnan posted the matter for hearing.

RNRL moved the apex court seeking to restrain RIL from supplying or entering into a contract for supply of natural gas for 40 mmscmd with any other party. RIL also challenged the Bombay High Court judgment that asked it to supply 28 mmscmd gas to the former at USD 2.34 per mmbtu.

The tenure, price and other key terms in the family separation agreement were the same as that of the gas supply contract awarded by NTPC to RIL, pursuant to international competitive bidding conducted under the aegis of power ministry. RNRL said gas supply obligation was a result of business reorganisation of Reliance Industries approved by the board of directors, over 20 lakh shareholders of RIL and by the Bombay High Court in 2005. The business reorganisation had followed due process of law and had recorded no-objection by the Centre, it said.
The case is a commercial matter between two listed public companies.

“RIL has frustrated setting up of new environment friendly, clean, green gas-based power plants of over 12,000 MW capacity of Reliance ADA Group and of NTPC amidst severe power shortage, therefore holding an investment of over Rs 50,000 crore at ransom,” RNRL said.

The Bombay High Court had ruled that RNRL should get gas from RIL at a price of $2.34 per mmbtu, but had asked the two companies to firm up an agreement on related issues within a month.

Challenging the High Court verdict, Reliance Industries Ltd in its appeal said that the High Court had erred in deciding the three terms — quantity, tenure and price of gas supply to power plants of RNRL affiliates as the court had no jurisdiction.

“The high court as a company court exercising jurisdiction under Section 392 of the Company Act, 1956, had no power to modify the scheme of reconstruction of a company by demerger as approved almost unanimously by 99.9998 per cent shareholders and creditors and sanctioned by the court...,” RIL said in appeal.
The Bombay High Court on June 15 had asked RIL to honour a 2005 family agreement to supply 28 million cubic metres of gas per day from its Krishna-Godavari basin fields to RNRL at USD 2.34 per mmBtu for 17 years from the date of setting up the Dadri power plant.

The Mukesh Ambani-run RIL stated that gas supply as per the MoU was subject to approvals required under the production-sharing contract and government policy. However, RNRL, refuting RIL’s allegations, sought to amend the Gas Supply Agreement strictly in line with the High Court findings and its immediate implementation.
Challenging a limited part of the impugned ruling, RNRL said the High Court had failed to give complete and effective relief to it by directing an amendment of the agreement instead of leaving it to the parties to work it out. RNRL filed the petitions challenging the final section of the High Court order asking RNRL to again negotiate after “ruling in our favour in terms of price of gas, tenure and quantity”.

The SLP seeks directions from the apex court to amend the Gas Supply Agreement strictly in line with the High Court findings and for immediate implementation of the same.

RNRL said the High Court order required RIL to sign a bankable agreement within 30 days. “RIL continued to adopt a completely obstructionist position and conveyed its reluctance to sign agreement as per court order. The High Court has given clear and unambiguous findings with respect to the quantity (28-40 MMSCMd), the period of supply (17 years), the price ($2.34/ mmbtu) and other key terms,” RNRL said.

RIL had refused to sign the gas agreement saying, “We cannot sign any agreement without approval of the government on price, quantity and tenure.”

Anil Ambani’s group disagrees with the argument. The company contended that the government is not a party in the company’s ongoing dispute with Mukesh-led RIL on gas supply. RNRL’s counsel Mahesh Aggarwal said, in a letter addressed to the Ministry of Petroleum and Natural Gas, that the ministry has been joined by RIL in its SLP in the Supreme Court as an “intervener only, and not as a party respondent”. The counsel further said that the Bombay High Court in its order dated October 22, 2008 had directed the ministry to be joined as an intervener in the appeal filed by RIL.

It was specifically recorded by the court at that time too that the ministry “is not a party respondent and has been joined as an intervener for the limited purpose of assistance in the interpretation of the PSC (Production sharing Contract between the government and RIL),” he noted.

It is now for the nation’s Chief Justice and his bench to adjudicate if the government as owner of the natural resource can have a say on the price, quantity and tenure of gas sale or the issue is a mere commercial dispute between the contractor of the field and a potential buyer.

RIL was aggrieved over the order directing it to supply 28 million standard cubic metres per day of gas at $2.34 per million British thermal units (mmBtu) of gas for 17 years from the date of setting up of the Dadri power plant. It said that the High Court had erred in deciding the three terms —quantity, tenure and price of gas supply —to power plants of RNRL affiliates.

RIL pointed out that the MoU did not specify any price but only indicated that the gas supply would be on terms not less favourable than the NTPC commercial terms, which contained the price of $2.34 per mmBtu of gas.

The court overlooked the fact that admittedly this price as well as any price proposal relating to RNRL was separately and expressly subject to approval by the Government, which by its communicated dated July 26, 2006, had declined to approve the price.
The High Court had overlooked the fact that in the absence of allocation by the Government, RIL could not utilise the gas produced and saved by it as the contractor of the Government to utilise any gas for its captive use. The SLP sought quashing of the impugned order dated June 15 and an interim stay of its operation.
In its SLP against the same interim order, RNRL said it was aggrieved as the High Court had erred in not giving a direction for amendment of the gas supply agreement. It said the entire controversy arose in view of RIL's consistent and continued conduct of backing out from its firm commitment to supply gas to RNRL.

RNRL alleged, “This is purely out of commercial greed. Higher gas price being sought by RIL will only further enrich this already very profitable company by windfall profits of additional Rs 50,000 crore at the cost of common man in the country apart from making Indian power industry uncompetitive by raising the input cost of power.”

It said, “RNRL is not seeking anything over and above what was a solemnly committed binding commercial obligation by RIL, its board and shareholders in the year 2005 under the scheme sanctioned by the court, read with the MoU, acted upon by the parties.”

It sought direction to restrain RIL from supplying or entering into any contract for the supply of natural gas for the amount of 40 mmscmd with any other party other than the petitioner. The question is can the government watch helplessly how the case progresses and let the gas find remain unutilised till then? Andhra Pradesh Chief Minister feels that the government must intervene. His fear is that the legal dispute on gas supply could hurt other consumers. He has asked Prime Minister Manmohan Singh to defend the Centre’s right on allocating national resources.

“We are apprehending that the litigation between RIL and RNRL might take away the powers of EGoM, unless it is properly defended in the Supreme Court. All gas supply contracts, be it the family contract or the GSPA with the power plants should become subordinate to the decisions of EGoM and not otherwise,” Reddy said in the letter dated July 4 and addressed to Singh.
An Empowered Group of Ministers had earlier set the priority for allocation of gas with fertilizer at the top followed by power plants and fixed the price of gas from RIL’s KG basin fields at USD 4.2 per mBtu —44 per cent higher than what the Mukesh-run company had quoted in its NTPC tender.

“It is only fair that EGoM should have first honoured all the existing commitments before proceedings with new allocations or allocations to projects which were promoted on the basis of firm allocations from other gas fields...We have also requested that we should get at least 10 per cent of the gas allocation on preferential basis for industrial development in our state,” Reddy’s letter said.
It will be interesting to see the effect of the missive on the government move in the dispute and also how the same influences the honourable bench of the nation’s apex Court in adjudicating on the case.

With suitably drafted missives, timely leaks of the same in media and points and counterpoints which are galore the family feud has now emerged as an interesting national debate.

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