Gas dispute: what will re-negotiations involve?
07 May 2010
The much awaited Reliance Industries-Reliance Natural Resources verdict is out. The court has upheld the production sharing contract (PSC) and has redirected the warring factions to the negotiating table. It has also ruled out the validity of the memorandum of understanding signed between the two brothers in 2005, which ensures that for 7 years RIL will continue supplying gas to RNRL at $2.4 per barrel, at nearly half the $4.2 per barrel rate prescribed by the government.
Experts have generally ruled out any further legal tussle, now that the Supreme Court has given its verdict. The question now is what exactly will be discussed during the re-negotiation between the two feuding brothers.
According to a CNBC-TV18 report, Harish Salve, counsel for RIL, said as per the empowered group of ministries (EGoM) ruling, the Dadri project cannot receive gas till the project is up and running. That will form part of the negotiation, and "also minor details like the cap on liabilities needs to be renegotiated". The question is what would be RNRL's liabilities if it does not pick up the gas from RIL.
When asked about possible review of the judgment, RNRL counsel Saurabh Kirpal refused to comment. "We are still awaiting clarity. It will take days to understand and analyse the entire judgment. Our stand will depend on closer understanding of the full judgment. We are looking at three parameters, namely, price, tenure, and volume," he said.
Investment advisor S P Tulsian of sptulsian.com, a close follower of the entire legal tussle, said RNRL may want to reduce the tenure when they renegotiate their gas contracts. "RNRL may say that we are not on with our production capacity and may take about three-four years, so we want to have the tenure reduced to maybe 12-13 years. Already one year has passed and the life of the wells is only 17 years, so only 16 years of residual life is left. Hence, they may opt for tenure of 12-13 years." RNRL may even opt voluntarily to reduce the gas allocation from 28 mmscmd to about 20 mmscmd, he added.
Legal experts ruled out a review petition by RNRL, saying that the ruling has been delivered. Since both parties have to renegotiate under government rules, experts have ruled out a repeat of a dispute re-emerging and a repeat of a long-drawn legal court case.
In an interview to CNBC-TV18, Berjis Desai, managing partner, J Sagar Associates, said the chances of a review by the Supreme Court are virtually non-existent. However, Tulsian feels RNRL may prefer to make an appeal for review of this judgment in the next one-week or so.