The Bombay High Court has upheld the plea of Anil Ambani-owned Reliance Natural Resources Limited to be provided gas supply from Reliance Industries (RIL) at the pre-agreed rates. It has also asked both parties to resolve the dispute within a month through a fresh and suitable agreement as per the original memorandum of understanding that existed prior to the splitting of the Ambani group.
The court also ruled that the gas supplied at those rates can be used only for power generation and not for trading. Till the new agreement is reached, RIL will continue to supply gas as per the interim order of the central government. (See: Bombay high court lifts interim stay on RIL gas sale)
As per the original memorandum, RIL had agreed to supply gas from its KG basin to RNRL for its upcoming 7,400MW power project located at Dadri in Uttar Pradesh. RIL however had denied entering into any pact with RNRL. (See: 'No pact with RNRL' Reliance Industries)
In December 2006, RNRL had petitioned Bombay High Court to force RIL to go by the original memorandum. The court directed the two parties to settle the dispute internally, which proved to be difficult on the two issues of price and quantity of gas to be supplied, following which both parties appealed to the division bench of the High Court in early 2008.
State-run NTPC had also earlier been denied access to KG-D6 gas due to RIL's ongoing court battle with Anil Ambani group firm Reliance Power. (See: NTPC opposes sale of RIL's KG-D6 gas to Dabhol power plant)
Markets analyst S P Tulsian told CNBC-TV18 in an interview that the judgment would lead to Reliance Industries suffering losses to the tune of Rs 3,600 crore.
Commenting on the financial impact of such an agreement, he said, ''Eventually it will result in lower cost of production. If you see the present scenario, when crude is ruling at $70 per barrel and Reliance Industries has signed purchase agreements with the users, so I do not think that's really a point. So the only benefit to Reliance Power will be the raw material cost going down – whatever power they produce from 28 billion cubic meter of gas, they will have to pay about Rs 3,600 crore less. So there would be that much increased profitability for Reliance Power but that is obviously once the power projects goes on stream.''
There are doubts on whether the quantity of gas received by RNRL would be sufficient for its projects. According to research analyst Raja Rajeshwari, some calculations show the quantity may fall short by 20 per cent at Dadri. The excess gas could be thus billed at a higher rate of $4.2 per unit. In April this year, RIL had signed deals with nine power companies to supply gas at this rate. (See: RIL signs KG gas deals with power companies including Anil Ambani's Relance Infrastructure)
There is also a question of the excess gas produced. ''If RNRL is able to get gas at $2.34 per unit, it's definitely a victory for it because it got whatever it wanted. The only point which remains unclarified from the court is the 40 per cent overflow. In case Reliance Industries produces more than 80 million cubic meter per day; RNRL has been claiming 40% on that excess production too. That remains ambigious,'' Tulsian said.
According to Rajeshwari, ''It now remains to be seen how RNRL supplies gas to Reliance Power. Analysts in the power space say RNRL will add another $1 per unit to the $2.3 per unit rate at which it is getting gas, towards transportation charges and marketing margins.''
As specified in the original memorandum, the court has also kept the option open for the two brothers to consult their mother in case of difficulties in reaching the final agreement.
''I will give only 33-per cent weightage to this ruling because you have the other fronts where it can be fought on. I do not see any reason why Reliance Industries will not move to the Apex court. The case will now get litigated there also with the intervention of the government this time because earlier they were not a party to this dispute. Now they definitely will join the party. The supremacy of the mother's verdict has been kept in the legal orders also,'' Tulsian said.