RIL, RNRL sign new Gas Supply Master Agreement

Mumbai, June 25, 2010

Energy and petrochemicals major Reliance Industries Limited (RIL), headed by billionaire Mukesh Ambani, today said it had signed a new Gas Supply Master Agreement (GSMA) with Reliance Natural Resources Limited (RNRL), led by his younger brother Anil Ambani, after the two companies fought a bitter legal battle over the issue for five years.

In a statement, RIL said the revised agreement was in pursuance to and in compliance with the directions and orders contained in the judgement of the Supreme Court delivered on May 7 this year.

It said the GSMA was compliant with the Gas Utilisation Policy of the Government and the decisions of the Empowered Group of Ministers.

Separately, RNRL informed the Bombay Stock Exchange that it had signed a revised Gas Supply Master Agreement with RIL today.

"RNRL will now take appropriate steps requesting the Government of India for expeditious allocation of natural gas to facilitate implementation of the same," the statement added.

Today's agreement means that RNRL will get gas from RIL's Krishna-Godavari (KG)-D6 block, but at prices set by the Government, which will be much higher than the $ 2.34 per mmBtu that it had hoped to pay under the terms of an agreement between the two brothers when the Reliance empire was divided five years ago between them after the death of their father, the legendary Dhirubhai Ambani. The Government will also decide the quantity and the tenure of supply.

The matter went to the Supreme Court, which delivered a verdict that went 2-1 in favour of RIL, upholding its stand that the agreement between the brothers could not take precedence over Government policy, which determines who can receive gas and at what price and for what tenure.

The pact between the brothers had said that RIL would supply 28 mmscmd of gas from its Krishna Godavari (KG) D-6 block to RNRL on the same terms that RIL would supply gas to the public sector power major NTPC Ltd, subject to government approval.

RIL had earlier emerged as the lowest bidder for supplying gas to NTPC with its offer of a price of $ 2.34 per mmBtu. The two companies, however, are yet to sign a formal gas sale and purchase agreement, with the matter now in the Bombay High Court, after RIL objected to some of the conditions, especially those relating to liability, in the draft agreement.

Mukesh AmbaniRIL and Niko Resources of Canada had won the exploration contract for the block under the government's New Exploration Licensing Policy (NELP). RIL owns a 90 per cent stake in the project while Niko holds the remaining ten per cent.

The Bombay High Court ruled in June last year that RIL should supply gas to RNRL at $ 2.34 per million metric British thermal unit (mmBtu), which is nearly half the $ 4.20 price it had set in an interim order in January.

The matter then went to the Supreme Court, where RIL had gone in for an appeal and the Union Ministry of Petroleum and Natural Gas had filed a special leave petition (SLP).

 In its verdict, the Supreme Court ruled that the production sharing contract (PSC) between the operator of the exploration block and the Government would override all other agreements. It held that the MoU between the two brothers was not legally binding in this regard.

The apex court also told RIL and RNRL to renegotiate their deal within a period of six weeks. If that did not work out, the matter could be taken to the Company Law Board.

RIL sources said the company would supply gas to RNRL at the government-set rate of $ 4.20 per mmBtu, the same price at which it is supplied to all its existing 35 customers as soon as RNRL's power plants are ready to receive the gas. The sources indicated that this could be some three years away.

RIL currently produces about 62 MMSCMD of gas from KG-D6, and can ramp it up to 80 MMSCMD per day, the sources added.

Mr Mukesh Ambani had told the RIL anual general meeting last week that his company would commence gas supplies to RNRL as and when they were ready to receive gas.

This would be subject to the Government granting allocations to these plants and in the same manner that RIL supplies gas to all other plants to whom the Government had allocated gas from the Krishna-Godavari (KG)-D6 gas field, he had said.

He had said the Supreme Court had upheld, in most parts, the stand of RIL. "It has always been our position that we are, and continue to be, governed by the provisions of the Production Sharing Contract in all respects of the Petroleum Operations carried out by us. We have also been fully conscious that the Government of India has more than a significant say in these operations," he said.

"With this legal dispute behind us, we look forward to a harmonious and constructive relationship with ADAG (Anil Dhirubhai Ambani Group)," he said.

Earlier, on May 23, in a sign that the two estranged brothers were ready to end their five-year-old public spat, the two groups had signed an agreement cancelling all existing non-compete arrangements between them. This has paved the way for major forays by RIL into the power, telecommunication, financial services, infrastructure, media and entertainment sectors.

Likewise, ADAG can enter sectors such as oil and gas exploration and production, refining, petrochemicals and retail, if it wishes to.

NNN

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