RIL can't sell gas allotted to ADAG: HC

NEW DELHI/MUMBAI: It’s Reliance vs Reliance once again, this time a court battle over the supply of natural gas from Reliance Industries’ (RIL) huge gas find in the Krishna Godavari basin.

Anil Ambani-controled Reliance Natural Resources (RNRL) has secured an interim stay from the Mumbai High Court, preventing RIL from selling 40 million standard cubic metres per day of gas, out of its estimated potential of 80 MMSCMD. Mukesh Ambani-controlled RIL plans to appeal against the interim order in a division bench.

The Mumbai High Court on Thursday passed an interim order restraining RIL from allocating the committed gas to any third party. This has come as a first sign of hope for RNRL, which has been left without an effective fuel linkage for the proposed Dadri power project. Thursday’s interim order restrains RIL from selling this gas to any third party or using it for its captive consumption.

In an e-mailed reply to a query by ET on this, a RIL official spokesperson said, “The Hon’ble High Court of Mumbai has passed an ad-interim Order with respect to a quantum of gas expected to be produced from KGD-6 area. The copy of the judgement is awaited. RIL prefers to appeal to the Division Bench against this order.” When contacted, RNRL officials declined to comment on this issue.

RIL had entered into a contract with RNRL to supply 28 MMSCMD of gas to RNRL for its proposed Dadri power project in Uttar Pradesh. RNRL had a claim on an additional 12 MMSCMD of gas originally committed to NTPC, if the gas contract with NTPC failed to materialise, as per the demerger scheme that underpinned the parting of ways of the Ambani brothers.

However, differences over the contract between RIL and RNRL, coupled with the petroleum ministry’s rejection of the price at which gas was to be sold, had put the Dadri project in a limbo. The court order and the resultant litigation over the contract are likely to have an impact on RIL’s work schedule. The company has been talking to consumers over the past few months to arrive at a price for the gas to be sold.

Although RIL has not signed any gas contract as of now, early talks have been held with potential consumers and the quantities they would require. RIL had even indicated that some part of the gas would be sold through auctions. Litigation over a part of the gas could impact this process since RIL is now on the final countdown to its gas production, slated to begin by January 2008.

RIL has projected a production of around 80 MMSCMD of gas from its KG basin. Although the litigation is over only 28 MMSCMD (RNRL’s share) or at the most 40 MMSCMD if NTPC’s deal fails, RIL’s plans for contracting the balance 40 MMSCMD may be impacted. However, given that the government stands to get a sizeable share of profit from RIL’s gas production, there would be pressure to see to an early solution to the litigation. RIL, however, is unlikely to let things slow down at this stage, and is expected to go ahead with its implementation schedule while awaiting a final say on the allocation.

The gas contract between RIL and RNRL was signed at a time when RNRL was still controlled by Mukesh Ambani. Consequent to the approval of the demerger scheme by the courts, RNRL was handed over to ADAG. However, sources within ADAG had alleged that the clauses in the gas contract were not in conformity to the demerger scheme. RNRL had moved the court in November 2006, seeking a stay on allocation of gas (committed to RNRL) to any third party.

On a petition filed by RNRL in November 2006, Justice AM Khanwilkar, in an interim order, said that RIL be restrained from creating any third party interest or right in respect of: 1) 28 MMSCMD of gas to be supplied to the applicant (RNRL), 2) 12 MMSCMD of gas to be supplied to the applicant on firm basis, in case the NTPC contract does not materialise. And or entering into any contract, and or use or supply to any third party. The said gas (28 MMSCMD or 40 MMSCMD as the case may be) which is required to be supplied to the applicant under the scheme (Demerger scheme).