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The Bombay High Court has asked Reliance Industries (RIL) and Reliance Natural Resources (RNRL) to renegotiate the gas supply pact between the two saying that an earlier agreement of January 2006 was against the Ambani family settlement. Justice A V Mohta gave both parties four months to renegotiate the deal and added that RIL cannot sign a gas deal with a third party till the period is over. The judge also upheld the validity of the Ambani family settlement that divided the Reliance group between Mukesh and Anil Ambani.

The order throws the ball back in the courts of the two companies that have been fighting for nearly two years over the price and quantity of gas to be supplied. RNRL first went to court in November 2006 alleging that RIL is not implementing the scheme of demerger between the two groups that has been approved by the courts. The demerger scheme was based on the family settlement between Mukesh and Anil Ambani in June 2005.

Among other things, the settlement provided for the supply of 28 million cu m of gas per day from RIL’s gas fields to RNRL at $2.34 per mmBtu. RNRL was also to have an option over 40% of all RIL’s future gas discoveries. However, disputes arose when the final gas supply agreement was being drafted in January 2006. RNRL claimed the agreement deviated from the family settlement and it was pushed through by RIL nominees on the RNRL board. RIL has denied the charges.

A detailed copy of the order was not available, but sources close to both the camps claimed it vindicated their stance and reaffirmed their position. Reliance ADAG sources expressed happiness with the development, “We are happy the interest of two million stakeholders is protected that quantity, price and tenure of gas supply as agreed between Mukesh and Anil Ambani in the family settlement has been upheld by the court.” The sources also expressed happiness that the court has upheld the legal and binding nature of the family agreement between the brothers.

Sources close to RIL said the renegotiations will address all issues including those related to quantity and prices in line with prevailing government policies and orders as well as commercial and international practices. “It may be noted that RIL has always affirmed that it stood by all provisions in the demerger agreement by making suitable agreements for ensuring gas supplies to RNRL’s power plants as laid out in the demerger agreement. While a copy of the order is awaited, the order would appear to vindicate RIL’s stand that all gas supplies have to be on commercial principles in line with government policies and approval,” the sources added.

The Bombay High Court has not stayed its earlier order dated May 3, 2007, and June 20, 2007, restraining RIL from entering into a commercial agreement with a third party with respect to 81.6 million metric standard cu m per day (mmscmd) of gas. This means that for four months, RIL cannot enter into commercial agreements with third parties for 80 mmscmd of gas available from D-6 block of the Krishna Godavari (KG) basin from June 2008.

Sources in the know say a core team in both groups would be formed to renegotiate and execute a fresh GSMA, which shall be commercially suitable for both parties. The fresh GSMA will be subject to government approval. In 2006, the government rejected the RIL-RNRL gas sales agreement following which RNRL moved the court.

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