Verdict in Reliance gas dispute case tomorrow

The Supreme Court will pronounce on Friday its verdict on the nation’s most talked corporate battle over gas supply, outcome of which will shape the future of flagship energy firms run by brothers Mukesh and Anil Ambani. A three-judge bench headed by Chief Justice K G Balakrishnan, who demits office on Tuesday, will give its judgement on the gas pricing and supply dispute between Reliance Industries (RIL) and Reliance Natural Resources (RNRL) . The apex court will decide if RNRL is entitled to get 28 million cubic meters a day from RIL’s eastern offshore KG-D6 fields, at $2.34 per mmBtu, a price 44 per cent lower than government approved rates. RNRL claims at least one-third of the peak output from KG-D6 flows citing a 2005 family agreement that divided the Dhirubhai Ambani empire between the two brothers. RIL, already India’s largest firm by market cap, is on the verge of becoming the nation’s biggest firm by profit this year, but for a judgement where it would have to sell gas at lower rate while paying royalty and taxes at $4.2 per mmBtu. On the other hand, Anil, may have to rework plans for the ambitious 7,800 MW planned power project at Dadri in Uttar Pradesh if the apex court refuses to give it preferential treatment in supplies and price. Chief Justice K.G. Balakrishnan, who had after 26 days of hearing, reserved a judgement on lawsuits fought by high profile lawyers Harish Salve (for RIL) and Ram Jethmalani (for RNRL) on December 18, is due to demit office on May 11. Before coming to the Supreme Court, the Bombay High Court had ruled that RNRL was entitled to get gas at concessional rates as had been decided in the family agreement. However in the apex court, the government, through the Oil Ministry, impleaded in the case asserting that natural gas was a national property and it cannot be surreptitiously divided through private agreements. If the three-judge panel upholds the Bombay High Court verdict, RIL will have to supply gas to Anil Ambani group’s proposed Dadri power plant at $2.34 per mmBtu, 44 per cent lower than the government set price. That may not be a problem for RIL unless the court says the government fixed price of $4.2 per mmBtu for KG-D6 should be used for calculation for taxes and royalty. In such a scenario, RIL stands to lose huge revenues over the 17 year contract period. Also, RIL will have to find new source of gas to meet its obligation as KG-D6 field may not be producing 28 mmcmd for 17 year from the date Dadri is commissioned, which may be at least three years from now. If, however, the RIL contention that it cannot sell gas at price less than $4.20 per million British thermal unit as set by the government and to customers other than those identified in accordance with the Gas Utilisation Policy, is upheld, the Anil Ambani Group will have to rework plans for the 7,800 MW Dadri plant. RIL says it was robbed of its freedom to market gas after RNRL, in the run-up for fixation of price of KG-D6 in 2007, sought a GUP. The apex court heard the case for 26 days since it commenced on October 20. It also witnessed the recusal of Justice R.V. Raveendran from the Bench after hearing the matter for six days on the ground that he held shares of both RIL and RNRL Sources: THE HINDU