It was learnt,  law ministry has given its opinion earlier this month which could put US $9.6 billion dollar in serious jeopardy.

Essentially this is a point that has also come through the recent Supreme Court judgement in the Ambani gas battle. The interpretation of that taken together with what the Law Ministry seems to have suggested means that perhaps, if not for all, but at least for some blocks perhaps, the pre-NELP blocks although we are still not fully clear on that, the Law Ministry does not favour a government go ahead because of the nature of the deal.

That would pose serious problems for this deal. We have reached out to Cairn for the comments, they did not comment, they declined to comment because it is obviously between the government. But sources seem to suggest that this law ministry opinion is something which was sought on a query by the Oil Ministry. For that to be taken up or to be changed in any manner from hereon may be tough.

In summary, the Law Ministry opinion points out that a leased right cannot be sub-leased, the production sharing contracts do not provide for that, and perhaps that could become the latest and the biggest stumbling block in this deal that has already sort of spilled over into a delay.

CNBC-TV 18

The Enterprise value of these assets has been valued at Rs. 1095 crore by the advisory firm KPMG, said press release issued by the Reliance Power.  With the transfer of 433 Mw of generation assets,  Reliance Power’s total generation portfolio has crossed 1,000 Mw mark as 600 Mw capacity at Reliance Power’s Rosa plant being already commissioned.

The assets of R-Infra which were transferred to Reliance Power include 220 Mw  plantat Samalkot in Andhra Pradesh, 165 Mw at Kochi in Kerala and 48 Mw plant in goa and all plants are gasbased plants. 

The press release also mentions, there is considerable scope for capacity expansion at all these sites, perhaps indication of both brothers reaching to the agreement on gas supply.

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.

In the dispute, where RNRL sought gas at a concessional price of $2.34 per mmBtu as against the government approved $4.20 per mmBtu, the Supreme Court said the government has the last word on pricing and usage. It also asked RIL and RNRL to renegotiate gas supply terms within six weeks. “RNRL has currently no plans to file a review petition in the Supreme Court,” Ambani said. Anil Ambani, who left the court without taking any questions from reporters after the judgement was pronounced, said that the court has safeguarded the interests of 25 lakh shareholders of RNRL by issuing guidelines for expeditious finalisation of gas supply agreement. “By a majority judgement, the Supreme Court has upheld RNRL’s case that the company petition filed by RNRL as maintainable and has upheld the powers of the court to modify the scheme and make it workable,” he said. Ambani said that the apex court has also acknowledged that the June 18, 2005 MoU was basis for the business reorganisation of RIL. “The court has also directed that suitable arrangements for gas supply should not only be suitable to RIL but also the shareholders of RNRL, whose interests have to be fully protected,” he said. RNRL is seeking 28 mmscmd of gas from RIL’s KG-D6 fields for group firm Reliance Power’s proposed power plant in Dadri, Uttar Pradesh. -PTI

“I feel, I have been vindicated, I was made the  scapegoat of an ugly corporate war. Unfortunately media also fell in the trap. Since 2006 I am saying PSC is supreme and today  the apex court  just put its stamp on it.”

a) Need time to read the judgement
b) We don’t want to react until we have studied the judgement
c) Course of action will be decided after reading the judgement
d) Would not like to comment till the renegotiation is over
e) Extra two weeks given to reapproach SC

Minister for petroleum and natural gas, Murli said the Supreme Court verdict saying the government stand that gas belongs to the nation has been vindicated.

Immediately after the Supreme Court upheld the government’s right to fix price of gas and decide its utilisation, Deora  said “SC verdict upholds the fact that gas belongs to the government and the people of the country and that is what we have been saying.”

“I welcome the verdict. No matter what campaign one ran against the government, the nation is supreme,” he said without naming Anil Ambani group which had cast aspersions on his ministry for allegedly siding with Mukesh-led RIL.
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In the midst of the court battle, the government had also moved the Supreme Court asserting its sovereign right on pricing and utilisation, even as RIL said that it had fixed the gas price at $4.20 per mmBtu as per the government policy.
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PTI

The good thing about the judgement is that it doesn’t upset the present set of allocation and gas pricing. However at this stage it is a little confusing what there is to renegotiate. That we will know only after reading the fine print.

On the impact on NTPC case:  The PSC has provision for the value determination at price actually obtained from Government nominees. The NTPC sale at any lower rates than $4.2 and that being covered under this provision seems a far stretch