“Poor mother“ can't help as RIL, RNRL stick to their guns
22 October 2009
There seems no quick end in sight to the long-drawn four-way battle over the supply and pricing of gas from the Krishna-Godavari basin, with Mukesh Ambani's Reliance Industries Ltd (which is producing the gas), brother Anil's Reliance Natural Resources Ltd, and the government all sticking to their previous stands in the Supreme Court. The state-owned National Thermal Power Corp is the fourth party.
Indications are that the case is unlikely to be resolved before 17 November. On Wednesday, RIL told a three-judge bench of the Supreme Court that it would not be able to sell gas at $2.34 per million British thermal unit (mmBtu) to RNRL, as envisaged in a 1995 agreement, without the government's consent, saying the state is the owner of the natural resource.
''The gas is a national property and the government is the owner,'' RIL's lawyer Harish Salve told the bench headed by Chief Justice K G Balakrishnan. The Supreme Court is hearing an appeal against a Bombay High Court ruling directing RIL to sell gas to RNRL at $2.34 per mmBtu, as against the government-set price of $4.20 per mmBtu.
When the justices asked if RIL would not make unduly large profits by selling the gas at the government-mandated price, they were subjected to a tutorial on the economics of the production-sharing contract - the agreement between gas producers such as RIL and the government.
The bench then asked, ''If you (RIL) are selling gas to NTPC at $2.34, will you not make profits? Even if we assume you are making a marginal profit from such sale, would not the rate of $4.20 to RNRL result in making a huge profit?'' asked Justice R V Raveendran.
Salve replied, with the help of RIL's executive director P M S Prasad, that the PSC entitled the company to recover its costs. The PSC has a formula which stipulates that the contractor or the gas producer can recover his investment from revenues generated by the sale of gas, while a percentage is kept by the government. The government's take escalates once a certain multiple of the investment, which varies from contract to contract, is recovered.