Gas MoU not binding on company, says RIL

Reliance Industries

(RIL) on Tuesday told the Supreme Court that its chairman, Mukesh Ambani, had signed a memorandum of understanding (MoU) containing provisions promising supply of natural gas to the Anil Ambani Group in his personal capacity. The company’s board of directors had not seen the MoU and had not approved it, an affidavit filed by RIL claimed, an assertion backed by seven company directors who filed separate written statements.

The affidavit goes on to say the provisions of the MoU were not binding on RIL. Mukesh Ambani’s firm sought permission of the court to place the minutes of two board meetings of August 2, 2005, and August 5, 2005, on record to support this claim.

According to the MoU signed in 2005, as part of a settlement dividing the Reliance empire, RIL is to supply 28 million standard cubic metres per day (mmscmd) of gas to RNRL at $2.34 per million British thermal unit (mmBtu). This price is at a 44% discount to the price of $4.20 per mmBtu fixed later by the government for sale of gas by RIL to some power and fertiliser companies. RNRL says it has a binding contract for supply of gas at a price of $2.34. RNRL officials said they would not be able to comment as the matter was sub-judice.

The point about the Ambani family members signing the family MoU in their personal capacity is only one among a litany of arguments put forth by RIL in response to a special leave petition filed by RNRL in the Supreme Court.

RIL also moved a separate application in the apex court on Tuesday to place on record the ‘Listing Particulars’ dated August 23, 2006, of RNRL’s Global Depository Receipts (GDR) which are listed in the Luxembourg Stock Exchange.

RIL said the information contained in the ‘listing particulars’ strengthened its case in the dispute with RNRL over supply of KG gas. “RNRL has sought to create an impression in the SLP — in the apex court on supply of KG gas from RIL at discounted price — that the benefits of the lower gas price will be passed on by RNRL to the consumers of electricity, i.e. the common man. But the contents of the listing particulars reveal that RNRL will sell the gas to its affiliated power companies at prevailing market price,” said RIL, in its application.

“At such market price of gas in India, RNRL would make a windfall trading profit exceeding Rs 21,000 crore per year aggregating to an astronomical amount of Rs 3,50,000 crore over 17 years without RNRL making any investments whatsoever,” the affidavit alleged. “If RNRL’s demands were granted, the government would lose large sums of money in profit sharing, royalties and taxes. RNRL would reap a windfall at the expense of the government and RIL and its shareholders,” said RIL in the affidavit.

RIL also said it is merely a contractor and bound by the government’s policy on gas and it thus could not sell gas to RNRL at $2.34. “Marketing freedom under the PSC (Production Sharing Contract) is not absolute, but rather circumscribed by the provisions of the PSC and the policies and directions of the government,” said RIL in its affidavit. It added that “what RNRL demands in this case is contrary to the provisions of the production Sharing Contract — PSC entered into between the Union of India and RIL — and the gas utilisation policy promulgated and the consequent directives of the Government of India”.

It further said, “RNRL seeks to obtain a lion’s share of the KGD6 gas despite the fact that it has not built a single power plant since the de-merger and the ADAG Group owns just one gas plant which consumes a minuscule quantity of gas”.

The apex court is scheduled to take up the issue on October 20. The ministry of petroleum and natural gas had moved the apex court seeking quashing of a Bombay High Court order directing RIL to supply gas to RNRL at $2.34 per mmBtu. RIL had also moved the Supreme Court challenging the Bombay High Court order that asked it to supply 28 mmscmd of gas to RNRL at $2.34 per mmbtu.

RNRL, on the other hand, approached the apex court against a part of the Bombay High Court judgment. RNRL had said the high court while directing that the Gas Supply Agreement ought to be amended should have given final and effective directions for amendment of such agreement to make it bankable.