Does Govt. have absolute rights to determine gas prices?
Ashu Sagar, Secretary General - Association of Oil & Gas Operators
The Supreme Court delivered its judgment in Reliance vs. Reliance dispute and cut the Gordian Knot, whereas three separate disputes that were made to look intertwined , contrarian and therefore irresolvable, were separated for what they were.
The first is the issue between Kokilaben, Mukeshbhai and Anilbhai . They signed a piece of paper to divide the empire. They have personal responsibility to give effect to its legal, moral and emotional fallouts. They cannot pass their personal responsibility to the shareholders of the companies, whose money they use to build their power.
Second is the issue between shareholders of RIL & RNRL, who through an instrument of demerger decided their respective shares of wealth in their new Avatars. They cannot claim to riches beyond what they inherited in that instrument at the time of their birth.
Third, perhaps most unconnected but roped in the dispute is a contract between RIL & Government of India defining rights, responsibilities and obligations of the former. RIL cannot give what it does not possess i.e. Authority for Crony Sale of Gas, or Sale without Government approval.
A connected and not yet explored Corporate Governance issue maybe the implied contract made by management to the minority shareholders of RNRL of hidden value in the company, by building these tenuous connections.
The court rightly observed that PSC is Supreme, and an MOU does not stand on the same footing as a contract. It shall be interesting to see its impact on the NTPC vs. RIL dispute.
The court also observed that the Government is the owner of the Mineral Wealth of the country. As a basic principal it is undisputed. However it is not clear if the court has considered the fetters on these rights, created by the Sovereign himself; when he of his own accord, enters into a contract, and, in return for a consideration received, imposes limits on his own rights.
As per PSC ( the top document in this case), RIL- the contractor has a “Right to Freely Market its Gas” subject to – “Gas Utilization Policy”, “Sale within India” , “Negotiation at Arm’s Length” and “Approval of Government” . It is elsewhere established that a public authority’s decision cannot be whimsical, and must be after due application of mind. Thus the Government has a right to approve (or not approve after due consideration); but does not have a right to determine the counter-party, quantity, and price of sale.
The media reports that the Government’s absolute right to determine the price, quantity and buyer has been upheld. If that were so, it would be a grievous concern to the industry. In this case the Government rejected the sale of Gas to RNRL. Government had a right to do so. There the matter should rest. PSC did not oblige Government to act merely because some wing of it knew of what was being planned by some commercial entities. The argument on Governments right to price or disturb the free market, by artificially imposing barriers is a matter of another debate, and should rightly have been at another time.
The Solicitor General and other Government counsels have clearly submitted to the Honourable Court, that dismantling of APM is a “sine qua non” for expediting exploration through private equity and PSC regime. It remains to be seen, whether this judgment has struck at the roots of Governments own logic. Does it recreate an APM ? What shall be the validity of NELP subsequent to such a change ? In such a case, the least Industry shall expect is for the Government to bring out a white paper on its position on above issues.
As a country, we should also be aware that while the Sovereign can get away with unilateral distortion of contracts; the economy is far less forgiving. The free world and free markets react and recreate a balance.
Leave your response!