Supreme Court Rules In Favour Of Ril

The gas production from KG D6 developed by Reliance Industries is considered to be one of the modern India's best engineering feats and has received several accolades world over. Apart from being India's first deep water hydrocarbon facility, it has already emerged as single largest supplier of natural gas in the country producing over 60 MMSCMD of gas.

Reliance Industries Ltd is supplying gas to the customers as per the Government allocation at EGOM approved price of $4.2 per mmbtu. This will result in total revenue generation of $26.4 billion over the period of nearly 11 years (life of the field).

RIL, which has incurred total expenditure of $9.5 billion in exploration and development of the KG D-6 field, will earn $11.5 billion at an average 11% rate of return from the field. However, the larger beneficiary will be the Government and the energy-starved industries. It is estimated that the Government will earn a total sum of $14.9 billion from gas sales from KG D-6 field at $4.2 per mmbtu price. Of this, $8.3 billion will accrue on account of profit petroleum, whereas $2.9 billion will be realized in the form of royalty on gas production. Earnings for the Government as taxes on income will amount to $3.6 billion. In the one year of production and supply, the sectoral benefits have been significant.

Presently over 50 companies have signed long term GSPAs with RIL, based on the Government’s Gas Utilisation Policy. The gas has helped industries particularly power and fertiliser sectors.

Power Sector

Users get gas at a landed cost which is much lower than alternates like imported liquefied natural gas (LNG), the price of which touched over $20 per mbtu. NTPC, the country's largest power producer reduced its pricey LNG imports as domestic gas became available. These savings have gone to the pocket of the consumer, since most producers have agreements with the state power utilities to simply pass on the cost of fuel to the consumers. Oil Minister Murli Deora has confirmed that gas production from KG-D6 is a major achievement in country’s energy security.

As per an oil ministry’s note, about 22 million standard cubic meter per day (MMSCMD) gas from KG-D6 is supplied to power units. This has helped generate an additional 5,000 MW power. It not only reduced the cost of producing power but also revived four stranded power plants in Andhra Pradesh and now most power plants (getting KG-D6 gas) are running on a 90% plant load factor (PLF), where earlier PLF of these power units was around 60%. This is significant especially considering the intense summer faced by many states. As per industry estimates, the average saving to a household in Andhra Pradesh, a state which houses some of the plants to which the D6 gas has been allocated, would be as much as Rs 300 per month.

Fertilizer Sector

Fertilizer sector was allocated about 12.24 MMSCMD of gas from the KG basin during the year 2009-10. This would have resulted in urea production of 6.10 Million tonnes of urea and saved the Government nearly Rs 3,100 crore per annum. As per the Fertiliser ministry, gas from KG-D6 gas has saved 32 per cent in fertiliser subsidy as urea making plants shifted from costlier liquid fuels like naphtha to cheaper gas. Fertiliser subsidy is pegged at Rs 49,980.73 crore in 2010-11 fiscal from Rs 52,980.25 crore in the previous year. In 2008-09 fiscal, subsidy was over Rs 1,00,000 crore.

Steel Sector

The volume of gas sold to this sector during the year was about 1092 MMSCM or about 3.06 MMSCMD. The supply of KG D6 gas to the steel sector will lead to saving of over Rs 732 crore per annum to the steel industry

City Gas Distribution (CGD)

The volume of gas sold from the KG basin during the year 2009-10 was about 102 MMSCM or about 0.29 MMSCMD. The supply of KG D6 gas to the CGD sector will result in direct benefit to the people by reduction in cost of domestic and transportation fuel. Increased use of the gas, which is also considered as the 21st century fuel, will also reduce the emission levels thus impacting the issues concerning the environment positively.

The Government of India decided to intervene in the case at the Supreme Court seeking to enhance its role. Before the Bombay High Court, the Government was restricted to help the Court interpret the Gas Utilisation Policy. However, after studying the judgement of the Bombay High Court, the Government decided to protect its rights over a natural resource like Gas and policy which was guiding the use of this resource for the priority sectors of the country by intervening in the case. One of the compelling arguments of the Government has been how a private agreement between two private entities can undermine a national policy governing a national asset. Private producers as also industry association like Fertiliser Association of India also moved court to intervene in the case as their interests, investment plans and future profitability of these companies. Also, these companies feared development of a non-level playing field where one player could get undue advantage for no efficiency or skill of operation but just legal strategy

On 7^th May, in a landmark judgement for corporate India, the Supreme Court ruled 2:1 in favour of Reliance Industries in the RIL-RNRL. As per the Supreme court verdict (Economic Times), RNRL can only get gas in future based on government allocation and pricing. The Supreme court reiterated that Production Sharing Contracts (PSC) over-rides all agreements and has held the family MoU between Mukesh Ambani and Anil Ambani legally non-binding. The government has guided both RIL and RNRL to renegotiate their agreement based on government policy within the next six weeks and file a new plan to the company court.

Chronology of Events: RIL-RNRL Dispute

Finally, 4 years of Court battle between RIL and RNRL ended with a landmark judgment, the Supreme Court ruled 2:1 in favour of Reliance Industries. Events unfold as follows

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