RNRL wins gas supply dispute; stock up 20%

>> Monday, June 15, 2009

The Bombay High Court has said that Anil Ambani’s Reliance Natural Resources Ltd (RNRL) will get assured gas supply of 28 million metric
Ambani brothers standard cubic metre per day (mmscmd) of gas from Mukesh Ambani’s Krishna-Godavari basin for 17 years at $2.34 million metric British thermal unit (mmbtu).

The gas supply will have to increase by 11 mmscmd if RIL does not supply gas to NTPC. The court has asked RIL to arrive at an arrangement along these lines within a month. The court has also said that the Ambani brothers may consult their mother if there is any difficulty in arriving at a conclusion.

Shares of Reliance Natural Resources surged 20 per cent on huge volumes Monday after the Bombay High Court pronounced the judgment in favour of the company in the long-standing RIL-RNRL gas supply agreement dispute.

RNRL said that they are happy with the order and this is a victory for them.

By the gas supply master agreement, RIL was supposed to supply natural gas from the Krishna-Godavari basin to RNRL, to be used for the Anil Ambani group's power generation plant at Dadri in Uttar Pradesh. The GSMA came into existence in January 2006, following the demerger of the Reliance group. But both the sides differed on its terms related to the quantity of gas to be supplied, price, and duration of supply.

In December 2006, RNRL moved the Bombay High Court asking it to compel RIL to honour the gas agreement. Justice Anup Mohta, who heard the case, asked the companies to settle the matter internally under the June 2005 family agreement. The judge also restrained RIL from selling gas to third parties till the final order.

Unable to agree on the price, terms and quantity of gas, both firms approached the division bench of the Bombay High Court against the order of the single bench in early 2008. The hearing of the matter continued till February 2009. Thereafter, the division bench came out with an interim order allowing RIL to sell gas to third parties. The interim verdict also mentioned that RIL’s gas agreement with others would be subject to the court’s final order.

The basic argument in the RIL-RNRL case pertains to the pricing and quantum of gas. During the course of hearing, RNRL made it clear that it wanted 28 million metric standard cubic meters per day of gas for 17 years for $2.34 per million metric British thermal unit (mmBtu), while RIL argued that it could not sell gas below the government-approved price of $4.2 per mmBtu. - Economic Times