The Ril - Rnrl Case

The Ril - Rnrl Case

"The people of the entire country have a stake in natural gas and its benefit has to be shared by the whole country."

- Association of Natural Gas & Ors. vs. Union of India & Ors. – (2004) 4 SCC 489 (CB).

Introduction to the Reliance Gas Case

The Reliance Gas Case finds its roots in the dispute between Mukesh Ambani-led Reliance Industries Ltd (RIL) and Anil Ambani-led Reliance Natural Resources Ltd (RNRL).

Anil Ambani began, what became the biggest battle between industrial giants that the country has ever seen, in 2006 when he filed a case against RIL over Krishna Godavari (KG) basin gas supply.

He accused that his elder brother was violating the family agreement signed by the brothers in 2005 in the presence of their mother Kokilaben, when the Reliance group split. The Bombay High Court in December 2005 had made a contract between RNRL and RIL such that RIL would supply gas to RNRL uninterruptedly at agreed upon price. RIL found good reserves in KG basin (Krishna-Godavari Basin) in Andhra Pradesh. Later RIL decided not to give the gas to RNRL and the legal battle started again at the same time when KG basin's resources were about to be used.

Mukesh Ambani, on the other hand, argued the intrinsic role of government and its approval in supply of 28 mmscd gas for 17 years at 2.34 dollars per unit to RNRL.

Viewpoint of Affected Parties

Reliance Industries Limited- Mukesh Ambani Group

RIL had invested heavily in the exploration business, and that gave the results when they discovered the gas in the KG basin. RIL had a production sharing contract with the government (PSC) under which it was able to get the part till the 80 to 90 % of the total expenditure incurred by them would be recovered. The government would then be given fair share from the remaining production.

As per PSC RIL could market the gas to other consumers in India, the group of ministers had decided the price of selling the gas as $4.2 MMSCD, which started the fight between RIL-RNRL-NTPC-GOVT. altogether. The current consumers of the gas were several power plants, steel plants and the fertilizer plants. The government was deciding the parties to whom the gas would be supplied on the priority basis.

Naturally RIL did not want to give the gas at a cheap price to RNRL so they brought government into the picture saying that they couldn't sell the Gas at the lower rates.

Negative points for RIL

If the verdict went against the RIL, and the court would give the order to supply the GAS to RNRL at the predetermined price as per the MOU, and RIL would lose around 30,000 crores in 17 years.

Reliance Natural Resources Limited – Anil Ambani Group

The group led by the younger brother Anil Ambani accused RIL to put its corporate greed over the national interest. RNRL alleged that the CAPEX which was shown by the RIL group on the KG basin was totally inflated when it was revised, this being done just to take more money from the governments property.

Positives for RNRL

NTPC had awarded the contract to RIL for supplying the Gas at the rate of $2.6 per MMSCD through the bidding process and RIL had agreed to supply that. So if RNRL was not going to get the gas at the stated price, the NTPC would also will be weakened and in that case the Government would lose money by paying higher charges and breaking its own stance.

Negatives for RNRL

1. RNRL IPO prospectus stated the risk factor for the company that it would be able to use the gas at the decided price only if the government gave the permission.

2. The plant which could be started at the earliest was the Dadri plant (this was the major power plant which could consume high quantity supplied per day), which by the project status was far away from completion. RNRL couldn't sell this power to the other people. So even if the High court gave the order in favour of RNRL, it would have been a problem on the RNRL part to consume this power.

NTPC

NTPC could have joined the battle against RIL by going together with RNRL, but after much of the deliberation the ministry of power had decided to stay separate from this. NTPC is also had a contract for 12 MMSCD of gas supply per day till the 17 years.

Government & Petroleum Ministry

"Gas is the public property and Reliance can't sell this Gas to any