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THE government has formally shown its hand in the Krishna-Godavari basin gas dispute between the Ambani brothers by filing an affidavit in the Supreme Court. It has sought a stay on the Bombay High Court order that directed Mukesh Ambani-led Reliance Industries (RIL) to supply gas to estranged brother Anil’s Reliance Natural Resources (RNRL) at $2.34 per million British thermal unit (mBtu).

The government’s contention is that the agreement between RIL and RNRL violates its production sharing contract (PSC) with RIL for developing the gas field; deters fresh, particularly foreign, investment in exploration and development of hydrocarbons in India; and thwarts the government’s gas utilisation policy, which privileges fertiliser as the priority customer for gas from the KG basin field.

The government has filed the affidavit as an intervenor, which means that it gets to assist the court in coming to a conclusion. The government wants to be impleaded in the case as a respondent, or as a party to the case, on the ground that the sovereign owns the gas. RIL supports the Centre’s stance. The government’s status is one of the early issues the Supreme Court will have to decide on.

The government’s position, as spelt out in the affidavit, comes as no surprise. Its stand before the HC was essentially the same, but it did not succeed, with the court ruling that RNRL has a valid contract with RIL for supply of gas from the KG basin.

The petition has claimed that its sovereign rights “cannot be subjected to private negotiations by mutual understanding”. The government further says “a private dispute between two parties and their alleged agreement (family MoU) cannot threaten the interests of other stakeholders, i.e. the government, in the contract”.

Foreign interest may be hit:

THE MoU by its very nature is in contravention of the PSC, which both the signatory parties were aware of before entering into this agreement (2005 agreement of RIL and RNRL),” the government said.

The matter is listed for hearing before a bench headed by Chief Justice KG Balakrishnan.

The government said RIL’s agreement to sell the gas to RNRL at $2.34 per mBtu is not based on an arms-length price. A sale made in 2004 would not be relevant for determining the price at which the gas is to be sold in 2006 or 2007, it said. The prevailing prices for domestic gas under the PSC are significantly higher, said the affidavit prepared by additional solicitor-general Mohan Parasaran, who is the government’s counsel in the case.

While RNRL’s views could not be immediately obtained, it had argued before the Bombay High Court that RIL has the freedom to price its gas and this price could be different from the one set by the government. This view was upheld by the high court.

The government for its part has argued that the agreement between the two brothers could adversely affect the government’s policy of attracting foreign investment in oil and gas exploration and also affect the allocation of gas to priority sectors such as fertiliser and power sector. It also claims that the move would harm RIL’s partner in the block, Niko, which has also signed the PSC. The foreign partner of RIL in the KGD6 block has a 10% stake in the project.

A foreign company should not be penalised for no fault of its own, the
   government said in the affidavit. “The interest of foreign investors should be protected under the PSC,” it said.

In its affidavit, the government said, “Any interpretation which is not in line with the PSC would severely impact the effort of the government to attract foreign investment, especially when the government is in process of attracting investments through NELP bidding rounds,” it added.

Earlier, RIL filed an affidavit through PH Parekh and Co in the apex court opposing RNRL’s plea. RIL said it is a contractor under the PSC entered into with the government and “has no unfettered rights on the quantity and the price of gas and is bound by the terms of the PSC and the policies and directions issued by the government from time to time”.

In the affidavit, the government said, “The whole structure of a PSC would collapse and be rendered completely unworkable in a situation such as this (RIL vs RNRL case) even the fundamental aspect of the PSC such as determination of each parties ‘take’ or ‘entitlement’ would be rendered impossible of determination”.

The role of the government in fixing the sale price of a scarce natural resource like natural gas ensures a level playing field among all the producers of power/fertiliser that are priority sectors, it said.

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