RNRL-RIL row: Gas supply contract unbankable & unsuitable

NEW DELHI: Price, tenure and quantity, which are fundamental to any contract, have been kept completely uncertain by Reliance Industries in the gas supply agreement with Reliance Natural Resources (RNRL), making the contract unbankable and unsuitable, RNRL told the Supreme Court on Tuesday.

RNRL’s lawyer Mukul Rohatgi said that RIL has devised a complex formula for gas supply to RNRL and unilaterally inserted provisions that were not only ‘obnoxious’ but also went against the family memorandum of understanding (MoU) of 2005, which provided a fixed quantity of gas from the KG basin for 17 years.

The RNRL counsel contended that the provisions of the Gas Supply Master Agreement (GSMA) was unilaterally formulated and signed at a board meeting of RIL on January 12, 2006, undermining the interests of Anil Dhirubhai Ambani Group (ADAG).

Urging the court to direct RIL to submit a bankable agreement on gas supply, Mr Rohatgi said that the gas supply agreement must be in line with the terms spelt out in the Ambani family business reorganisation pact and also comply with the court-ratified scheme of business arrangement on the tenure, quantity and price of supplies.

The ‘objectionable’ provisions in the GSMA reduces the tenure of gas supply to one to four years from the 17 years as envisaged in the 2005 MoU, making the agreement unbankable, Mr Rohatgi told the three-judge bench of
chief justice KG Balakrishnan, justice B Sudershan Reddy and justice P Sathasivam.

The three-judge bench of the apex court has been hearing the dispute over the supply of 28 million units of gas for 17 years at $2.34 per unit to Anil Ambani-led RNRL from gas fields off the Andhra Pradesh coast, awarded to Mukesh Ambani’s RIL.

The price, tenure and quantity of this gas supply is based on a 2005 family pact. But RIL has subsequently said it could only sell the gas for $4.20 per unit, as this was the price fixed by the government.

The Bombay High Court had earlier ruled in RNRL’s favour. RIL has appealed in the Supreme Court against this order.

Mr Rohatgi told the apex court that GSMA was against the interests of ADAG as it provided for gas supply directly to the affiliate of RNRL, which owns the power plant.

“In such a case, RNRL will not be the buyer, but its affiliate Reliance Power (RPL) will be the buyer and RIL will be the seller. This renders RNRL a shell company with no business,” Mr Rohatgi told the bench.

Citing the MoU, Mr Rohatgi said the arrangement between the Ambani brothers clearly provides that the gas has to be supplied by RIL to RNRL, which will have the right to supply it to power plants of ADAG.

So the gas sale and purchase agreement (GSPA) should be executed between RIL and RNRL in line with the MoU, he said.

RNRL argued that MoU clearly provided for 28 units of gas per year and additional 12 units (million metric standard cubic metre per day or mmscmd) in case the contract between RIL and NTPC did not materialise.

“RIL’s GSPA with NTPC clearly defines the tenure of supply as 17 years and same should be adopted for RNRL,” he told the bench.

RNRL, which has claimed that NTPC contract is a template for the supply of gas from the KG basin (as it was arrived through a process of international competitive bidding), said the provision that the price has to be approved by the government has to be deleted as “the price agreed for sale of gas by RIL to RNRL under the MoU cannot be subject to government approval”.