RIL, RNRL gas dispute all set for court finale

The Supreme Court in the next few days is likely to deliver its verdict on the gas pricing and supply dispute between energy companies RIL and RNRL, which have seen their share valuations erode as the judgement day nears.

The verdict is expected on or before May 12, the day of retirement of Chief Justice K G Balakrishnan, who is heading a three-member bench that heard the dispute between Reliance Industries and Reliance Natural Resources Ltd, the companies led by billionaire brothers Mukesh Ambani and Anil Ambani, respectively.

RNRL is seeking 28 million cubic meter of gas a day or more than one-third of peak output from RIL's eastern offshore KG-D6 fields at a price set in a 2005 family agreement to split the Reliance business empire between the brothers.

If the three-judge panel, which reserved judgment in the lawsuit after arguments concluded on December 18, upholds the Bombay high court verdict, RIL will have to supply gas to RNRL'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 gas should be used for calculating taxes and royalty. In such a scenario, RIL stands to lose huge revenues over the 17 year contract period.

RIL shares have fallen 9.26 per cent in a month to Rs 1,020.90. RNRL took a beating, as it fell 7.55 per cent down in just two days to Rs 67.30 on May 4 as investors sold ahead of the Supreme Court verdict.

While RIL closed marginally down today at Rs 1,020.75, RNRL closed nearly two per cent up at Rs 68.50.

Also, RIL will have to find new source of gas to meet its obligation as KG-D6 field may not be producing 28 mmscmd for 17 years from the date Dadri is commissioned, which may be at least three years from now.

In the event of the court upholding RIL's contention that it cannot sell gas at a price less than USD 4.20 per mmBtu as set by the government and to customers other than those identified in accordance with the Gas Utilisation Policy, the Anil Ambani Group firm 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.

RNRL launched a media campaign against the oil ministry, accusing it of siding with RIL -- a charge vehemently denied by Petroleum Minister Murli Deora who insists that the government's intervention in the dispute was to ensure that national property (gas) is not surreptitiously divided through private deals.

The Bombay high court had last year upheld RNRL's claim for gas as made out in the family agreement.

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.