2. FACTS
Dispute has its origin in events where Indian Government
allowed private sector to participate in gas exploration through
NELP, 1999
In 1999, Government awarded Krishna- Godavari basin (KG-
D6) to RIL through execution of Production Supply Contract
(PSC)
Reliance industries found gas in KG basin 2002
3. In 2003, RIL through bidding process won the contract to
supply gas to NTPC at a specified quantity of $2.34mm/btu
On 18 June, 2005 RIL was divided into two parts amongst
Mukesh Ambani and Anil Ambani. Similarly, RNRL and RIL was
also divided , thereby Anil Ambani became Chairman of RNRL
In order to settle the difference between the two brothers
with regards to revenue earning, through intervention of
Kokilaben Ambani, a Memorandum of Understanding (MoU)
was being executed.
4. In the MOU, it was agreed by Mukesh Ambani’s RIL to sell
Anil Ambani’s RNRL 80 mmscmd of gas from the Krishna-
Godavari basin for 17 years at $2.34 per mmbtu- for its Dadari
Power Project.
With RIL not Supplying the gas at $2.34/mmbtu, RNRL went
to court against it for not implementing part of MoU when the
empire was being carved between two brothers, the dispute
was taken to High Court of Bombay.
5. ROLE OF OTHER PARTIES
KOKILABEN AMBANI: She recognized that a long-term,
stable source of gas from RIL, which has the largest find of gas,
was absolutely essential for growth plans of Anil Ambani group,
so that RNRL could reach to newer heights. She , therefore
specially stressed upon, Mukesh shall personally ensure that at
the time of execution gas agreements will provide comfort and
stability to both the brothers.
6. ISSUE RELATED TO PRICING
RNRL wants to buy at $2.34/mmbtu but RIL wants to sell it at
4.2/mmbtu subject to revision after five years.
The difference is just under two dollars in the respective
prices can result in profit or losses that run into billion of dollars.
2.34/mmbtu figure came from NTPC contract which was
signed between NTPC and RIL.
7. RIL won NTPC contract due lowest bidding of 2.34/mmbtu
and because of this quoted figure, RNRL wants to procure the
gas on same rate, as agreement between RIL-RNRL was
signed during same period.
Further in 2007, RIL invited the bid of buyers to purchase
gas and average bid was being made 4.22/mmbtu which was
approved by the government, as more rate means more profit
for government.
8. PETROLEUM MINISTRY
RIL got the right to look for in the KG basin after signing a
PSC with Government , where it gets a share of RIL’s KG basin
profit.
Since, profit related to the price, the Government said it has
the right to look after each contract RIL signs to sell gas, thereby
acquiring the right to reject the contract on the basis of no fair
pricing.
9. CONTENTIONS BY PARTIES
RNRL: It argues that Ministry role is limited under PSC
,ensuring that it gets fair share of profit or not. RIL has the right
to give away gas for free as long as Government is getting its
share of profit.
Further, the cost of production of gas is $1.28/mmbtu and at
$4.20/mmbtu ,RIL will make huge profit and RNRL will lose
around $1 billion (Rs. 4,200 crore) over 17 years.
10. RIL: They argued that, never committed to a price to
since it is subject to government approval and government has
rejected price of $2.34/mmbtu in January 2006 and approved
4.22/mmbtu.
If Government values gas at $4.2 for its profit share and RIL
has to sell it at $2.34 , it could suffer a loss of $5 billon.
11. Government: Petroleum Ministry argued, that the brother are
fighting over something that does not belong to them. Article
297 of Constitution of India lists petroleum and gas a resource
which Union of India has an authority over and RIL cannot sell
it unilaterally
Further, Price of $4.20 was approved and RIL cannot sell it at
$2.34/mmbtu
12. RULINGS
High Court of Bombay: Ruled in favour of RNRL, saying that
MoU does not violate the PSC and therefor ministry cannot to
cancel the agreement between RIL-RNRL
Supreme Court: After the appeal by RIL, supreme court gave
ruling in favour of applicant, saying that RIL has the right to sell
government specified price and MoU is not binding with this
regards.