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Home News Power Sector News Pricing of KG basin gas - Central Govt withdraws affidavit in Mumbai High Court

Pricing of KG basin gas - Central Govt withdraws affidavit in Mumbai High Court

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Mukesh-Anil fight for pricing of gasCentral government has withdrawn the affidavit on 11-12-2008, it had filed in the Mumbai High Court, arguing that Reliance Industries (RIL) cannot sell Krishna-Godavari basin gas at a price less than $4.20 per million metric British thermal units (mmBtu).The government had, on November 14, filed an affidavit in the Bombay High Court saying that Mukesh Ambani-promoted RIL did not have the right to sell gas for less than the Government-set price of $4.2.

The affidavit would have helped RIL in its fight against Reliance Natural Resources (RNRL) and the National Thermal Power Corporation (NTPC), which are claiming that RIL is legally obliged to provide them gas at $2.34 according to previous supply agreements. While in RNRL’s case, RIL is claiming that its hands are tied as the government is not letting it sell gas at $2.34, in the case of NTPC, RIL is refusing to finish the formalities pointing to what it says are tough indemnity clauses.

The withdrawal followed a demand by the counsel of Reliance Natural Resources (RNRL) Ram Jethmalani to cross-examine the government official, who had signed the affidavit on behalf of the government. However, the government counsel, additional solicitor general (ASG) Mohan Parasaran, and RIL counsel Harish Salve strongly opposed Mr Jethmalani's demand for any cross-examination of the government official.

Appearing for the government, ASG Mohan Parasaran said that the affidavit, filed during the hearings on the dispute between Mukesh Ambani-led RIL and his younger brother Anil Ambani’s company RNRL, was being withdrawn.

“We have withdrawn the affidavit as we do not want to waste the court time in cross-examinations. The government will assist the court with respect to policies and provisions of the production sharing contract (PSC). We will file our submissions in January, when the matter comes up for hearing.”

Arguing against cross-examination, RIL counsel Harish Salve said, “It's a tragedy of error. The court cannot allow cross-examination of an intervenor.” Mr. Salve also sought six full working days of the court to present his arguments against RNRL’s fresh appeals. In the long-running case between RIL and RNRL, the government had become an intervenor seeking to lift the stay on RIL's gas sales.

RNRL’s senior counsel and former law minister Ram Jethmalani outside the court said: “All the six affidavits filed by the government in the RIL-RNRL case from April to December has been withdrawn. They (government) are afraid of cross-examination because they would have caught on the wrong foot. They can’t say something in the Parliament and opposite thing in the court.”

The crux of the issue is whether the $4.2 per mmBtu is the final selling price or the price used only for valuing the government's profit petroleum. The government and RIL argue that both are the same. The valuation price cannot be much different from the final selling price. The government cannot take a different price for valuation from the one at which gas is sold to the seller.The production sharing agreement between the contractor (in this case, RIL) and the government gives the contractor the freedom to fix the price. However, it also gives the government the right to approve the price.

Last year when a major dispute arose over whether the gas from the KG basin should be used for fertiliser or power companies, the government constituted an empowered group of ministers (EGoM), which looked at the whole issue of gas pricing and allocation. EGoM had recommended a formula that they said should be used for gas sales from the KG D6 basin for five years. The price will be revised after five years.

“The formula, or the basis on which the prices shall be decided, for the purposes of determining the government-take is required to be approved by the government prior to sale of natural gas to the consumers/buyer. The price basis/formula for the valuation of natural gas has been approved by the government in case of block KG-DWN-98/3 of RIL/Niko,” petroleum minister Murli Deora had said in a reply to the Parliament in October this year.

However, the government affidavit filed in the court stated something else. “The sale of gas at a price less than $4.20 per mmBtu is not envisaged as per EGoM decision taken in accordance with PSC (between the government and RIL).” This affidavit was sworn by Mr SM Sundaram, under secretary in the petroleum ministry.

Early this month, the government issued a press note citing that price of $4.2 per mmBtu will be the final selling price for the KG basin gas. This move was strongly refuted by RNRL, which filed a fresh affidavit in the court citing government changing its stance.

The case will come up for hearing on January 12, when the government counsel, ASG Mohan Parasaran, will give written submission about the government’s final stance on pricing of KG basin gas.


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