The Telegraph
Since 1st March, 1999
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Court pricks Reliance gas balloon

Mumbai, June 21: Reliance Industriesí plans to negotiate a fresh batch of gas supply contracts went up in flames today.

Bombay High Court today slapped a restraint order on the petroleum behemoth under which it can sell gas till 2016 from its fields in the Krishna-Godavari basin only to the state-owned National Thermal Power Corporation (NTPC) and Anil Ambani-owned Reliance Natural Resources (RNRL). It can also keep some for its own use.

The gas fields are due to start commercial production early next year.

The court said the initial production from the KG basin of up to 80 million metric standard cubic metres a day (mmscmd) will have to be supplied to the NTPC, the Anil Ambani firm, and RIL.

The interim order was passed on a petition filed by RNRL. It said RIL could not supply this gas to third parties for the first eight years of production.

Production of gas from the KG basin is expected to commence with 40mmscmd output from June next year. It will go up to 80mmscmd by mid-2009. Out of the 40mmscmd of gas to be produced in the first phase, RIL is bound by agreements to supply 28mmscmd to RNRL and 12mmscmd to the state-owned power utility.

Last month, RIL invited bids from third parties for gas supplies. The courtís restraint order throws into a spin RILís recent price discovery process for the gas. RIL had received bid prices ranging between $5 and $6 per mmbtu under a complex pricing formula.

The government hasnít approved the price discovery formula as yet.

Justice A.M. Khanvilkar of Bombay High Court said it was inappropriate for RIL to commit to third parties any quantity of gas that was a subject matter of the RNRL petition.

Although it is an interim order, it is a huge setback for Mukesh Ambani and a big win for brother Anil.

Earlier on May 3, Khanvilkar had in an interim order restrained RIL from entering into any contract for supplies to a third party for the 28mmscmd committed to RNRL under the June 2005 separation agreement between the two brothers. The court had also directed RIL not to sell the additional 12mmscmd, which was to be supplied to RNRL if the deal with the NTPC fell through.

RNRL had filed an application in the high court praying for the implementation of the demerger agreement that came into effect in December last year.

The demerger pact, which was signed as part of the settlement between the two brothers, required RIL to supply the gas at $2.34 per mmbtu.

RIL was also involved in a legal dispute with the NTPC. Last year, the power generation major approached Bombay High Court for execution of a gas deal by RIL for its Kawas-Gandhar power projects in Gujarat at a price of $2.97 per mmbtu.

RIL has, however, maintained that it has not created any third-party interest in the KG basin gas as no contract has been signed with anyone till date. A spokesperson of RIL refused to comment on the interim order.

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