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Gas fuels fresh Ambani row

New Delhi, Feb. 4: The Ambani brothers are sparring again: this time it is over gas supplies meant for power projects that Anil Ambani plans to establish in Uttar Pradesh and Maharashtra.

The Anil camp has cried foul over a gas supply agreement reached between Reliance Industries Ltd (RIL) and a new entity called Reliance Natural Resources Ltd (RNRL) which has just been spun off from the parent.

RNRL is one of four demerged entities that will eventually go to Anil Ambani. It was supposed to be handed over to the Anil Ambani group on January 25 but still remains under Mukesh’s control.

On January 12, RIL and RNRL entered into the gas supply deal which, the Anil camp claims, contains “significant deviations” from a set of 11 main commercial points that the two sides had agreed upon when the broad settlement had been reached last year that led to the carve-up of the house that Dhirubhai had built.

RNRL has three directors: Sunil Tandon and L.V. Merchant who represent Mukesh’s camp, and J.P. Chalasani who belongs to Anil’s side.

The Anil camp has hinted that it will take steps to alter the agreement to “bring it in line with the agreed position, and to ensure full value for the 2.3 million shareholders of RNRL”.

Late tonight, the Mukesh Ambani camp riposted with a letter issued through RNRL which charged the Anil Ambani side with making “a deliberate attempt to mislead the public in general and shareholders of RNRL and RIL in particular”.

Shareholders of RIL will automatically get one share of RNRL for every share they hold in the parent company.

The Anil group’s broadside today comes on the heels of news reports that RIL had signed the agreement to sell 28 million metric standard cubic metres per day (MMSCMD) at the rate of $3.18 per million British thermal unit (MBTU).

The gas supplies will flow from the oil blocks in the Krishna-Godavari basin that RIL operates. The gas is supposed to flow from 2008.

Although the Anil camp was silent on what these “significant deviations” were, it was clear that they centred on price and the volume of gas that would be supplied.

The Anil camp claims that one of the key commercial points was that “the price and commercial terms for the gas supply will be no worse than that applicable to NTPC”.

The National Thermal Power Corporation (NTPC) had entered into an agreement with RIL under which it was promised gas supplies of 12 MMSCMD at a price of $ 2.97 per MBTU. RIL has since said it cannot supply at those terms and has insisted on renegotiating the deal, prompting NTPC to haul it to court.

The Anil camp says that one of the points that the two sides had agreed on was that if the NTPC deal fell through for some reason, then the gas meant for the state-owned power utility would automatically go to RNRL. There is no apparent mention of this clause in the supply agreement reached on January 12.

The base volume of gas supposed to flow from the gas fields has been fixed at 40 MMSCMD. The Anil camp said it had been agreed that half of the base volume would flow in 2008 --09 and the rest in 2009-10. Again, there is no mention of such proportionate supplies in the new deal.

The two sides had agreed that the Anil group would not trade in the gas but would use it exclusively for its power projects. But there was a codicil that said the gas could be “swapped” ' exchanged with a third party for an equal amount, which is a standard industry practice. Again, the new deal doesn’t specifically mention this.

The agreement, however, has introduced a couple of clauses that weren’t there to start with. For instance, the new deal says the Anil group will have the right of first refusal on the supply of 40 per cent of gas produced if the production from the gas fields exceeds 53 MMSCMD.

The Anil camp’s letter does not give the qualified figure of 53 MMSCMD. The Anil camp claims that it had been agreed that “from the entire future reserves of RIL Reliance ADAG (Anil Dhirubhai Ambani Group) will have the first option to get 40 per cent quantity of gas”. The supply of option volume gas was to be at market rates, the Anil camp claimed, and the gas could be used for all projects of Reliance-ADAG.

The Anil camp also claimed that Reliance-ADAG could also set up its own pipeline network to transport the base volume of gas. However, the January 12 deal says that RIL would supply the gas on its East-West pipeline whenever it was built. This clause could upset the delivery schedules that had been agreed as part of the overall Ambani settlement.

In their response, the Mukesh camp said the gas was meant specifically for the power projects of Reliance Patalganga Power Ltd and Reliance Energy Ltd. Reliance Patalganga is setting up a 447-mw plant in Mumbai while Reliance Energy has plans for a 5600 mw project at Dadri, near Ghaziabad in Uttar Pradesh. It said the gas could not be used by all ADAG projects.

More important, the Mukesh side said the gas was “not a firm supply” but subject to availability of adequate reserves and prior approvals of the Government of India.

The statement also said RNRL would be handed over to the Anil Ambani group only after the “receipt of approval of the stock exchanges to RNRL’s application for listing”.

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