Reliance - RNRL gas will lead us to losses

Reliance Industries on Thursday informed the Bombay High Court that it would incur losses in the range of 600-900 million dollars annually if it supplies gas to Anil Ambani-owned Reliance Natural Resources Ltd at 2.34 dollars per mmBtu.

Mukesh Ambani-owned RIL told the court that it could not promise a fixed quantity of gas to RNRL at 2.34 dollars, which is much lower than the price fixed by the government at 4 dollars per mmBtu.

If RIL entered into a contract to supply the fixed quantity of gas at 2.34 dollars, it would incur annual losses ranging from USD 600 to 900 million, RIL told the high court.

Division bench of Justices J N Patel and K Tated is hearing the dispute over gas supply from the Krishna-Godavari basin between RIL and RNRL.

RIL's counsel Harish Salve argued that RNRL's power plant was not going to commence before 2010 and till then, RIL could not be restrained from extracting gas.

As such, RIL could not wait for RNRL's power plant to come up and so they had to enter into gas sale purchase agreements (GSPA) with third parties.

Once RNRL notified it that their plant was working, they could enter into GSPA between them.

"The country needs the gas and if we keep waiting for RNRL, the government which owns the natural resource, will take us out of contract by 2025 anyway when the lease ends," said Salve.

RNRL has already given up its right on the gas for trading earlier, which they are trying to revive, he contended and added that the Gas Supply Master Agreement between RIL and RNRL specifically includes supply of gas on a suitable agreement for RNRL's power plants.

Regarding supply of gas for the RNRL power plant when it comes up, the quantity can be decided in accordance with a formula considering the total resource of gas available, the tenure for which the extraction will be carried out less the share that has to be given to the government on an annual basis, Salve contended.

RNRL is entitled to 28 mmscmd of gas when the production reaches 40 mmscmd. If RNRL want to procure more in case when the production increases, it will have to purchase it at market price, he said.

The GSPA has to be revised in accordance with the annual production of gas, he further said.

Also, just because RIL and RNRL are in dispute, the production sharing contract (PSC) with the government cannot be compromised, added Salve.

"We are ready to give the gas at the fixed price provided the government approves such price," he said.

RNRL has been citing the memorandum of understanding between the two companies regarding the fixed quantity of gas at the said price but the MOU cannot supercede the PSC with the government, he contended.

Also, the government has specifically said that the prices of gas to any third party other than itself has to be at arms-length prices, Salve argued.

RIL has invested 8 billion dollars in the project, he told the court.

Salve will continue to argue on the MOU, the documents in connection with the MOU and what is the scope of the company's jurisdiction regarding gas supply in the next hearing on August 5.