Revision as of 09:33, 30 January 2014

Reliance Industries vs. Reliance Natural Resources Ltd

Mukesh Wins A Big One

Govt’s Say Final, Anil Can’t Get Gas Cheap: SC

Dhananjay Mahapatra | TNN

From the archives of The Times of India 2007, 2009

New Delhi: A toxic, no-holds-barred battle between two estranged brothers that sucked in the Indian government ended on Friday with the Supreme Court ruling in favour of Mukesh Ambani’s Reliance Industries. Terming natural gas a ‘‘national resource’’, the court ruled that RIL cannot give gas to Anil Ambani’s Reliance Natural Resources Ltd (RNRL) at a rate lower than the price fixed by the Centre. It also directed RIL, by far India’s largest company, and RNRL to initiate renegotiation of their gas supply master agreement (GSMA) within six weeks and finalize the new terms within another eight weeks.

RNRL was seeking 28 million metric standard cubic metres per day (mmscd) at $2.34 per million metric British thermal unit (mmBtu) for 17 years, to be supplied to its proposed 7,800mw power plant at Dadri in UP. It based its demand on the terms of a June 2005 agreement brokered by mother Kokilaben to divide the corporate empire of Dhirubhai Ambani.

However, RIL argued that it could not supply the gas at less than $4.2 per unit, and that it was bound by the provisions of its productionsharing contract (PSC) between government and RIL, the gas utilization policy (GUP) and the decisions of the empowered group of ministers that determined to whom the gas should be supplied, what quantity and at what price. It also said in court that the MoU was not worth the paper it was written on.

RNRL had got favourable rulings from Bombay high court’s company court, which finalized the demerger scheme based on the family pact, as well as the HC’s division bench. But the SC decisively ruled that PSC, GUP and EGoM decisions would override any private agreement relating to national resources.

Analysts calculated that while RIL would have earned a profit of Rs 14,940 crore by selling 28mmscmd of gas to RNRL for 17 years at $2.34, it would earn a pre-tax profit of Rs 37,755 crore by selling at $4.2.

Gas And Heartburn the Judgment

SC overturns Bombay HC order, tells RIL and RNRL to start renegotiations within 6 weeks, finalize gas sale master agreement within another 8 weeks Private family agreement or MoU between Mukesh, Anil and their mother Kokilaben is a secret document and does not fall within corporate domain Govt has the power to determine price, quantity and tenure of gas to be supplied from KG basin to any party Production sharing contract between govt & RIL overrides any contract between RIL and any other party RIL’s gas marketing rights not absolute. Hence agreements entered into with RNRL to fix quantity, price and tenure must be in accordance with PSC

Gainers And Losers

Analysts say Reliance would have made a profit of Rs 14,940cr by selling 28mmscmd of gas to RNRL for 17 years at $2.34 per unit. It can make a profit of Rs 37,755cr by selling at $4.2. The SC verdict could thus potentially increase RIL’s profit by Rs 22,815cr over 17 years; govt set to gain Rs 22,415 cr at higher sale price

Huge shadow over Anil’s ambitious Dadri power project. RNRL shares hit 52-week low of 50 before closing at 53, down 23%

RIL market cap rises Rs 7,500cr. ADAG companies together drop Rs 9,000cr

Power ministry terms verdict “fair”, says ruling has no bearing on NTPC-RIL case

RIL’s profit may rise by Rs 22815cr

New Delhi: The SC verdict could thus potentially increase RIL’s profit by Rs 22,815 crore over this period. The government too is set to gain Rs 22,415 crore at the higher sale price.

In a statement, Anil Ambani, who was at the court Friday morning, said the SC had safeguarded the interests of over 25 lakh RNRL shareholders and the company ‘‘looks forward to expeditious and successful renegotiations’’ with RIL. However, investors were not so sanguine. Even as RIL shares surged 2.3% to close at Rs 1,034 after touching an intra-day peak of 1,060, RNRL crashed 23% to close at 53, after plumbing a 12-month low of Rs 50, a drop of almost 27%. Other ADAG scrips were also hammered, with Reliance Infrastructure dropping 7% to 980 and Reliance Power losing 9% to close at 140. While RIL’s market cap increased by Rs 7,500 crore, ADAG companies collectively lost Rs 9,000 crore in market cap.

An RIL press release said, ‘‘RIL sincerely hopes that the clarity of findings of the judgement brings to a permanent closure the incessant distortion of facts and malicious allegations which were being levelled against the government’s policies of regulating and developing the natura; gas sector...’’

The plunge in ADAG scrips followed a 2-1 verdict by a Supreme Court bench comprising Chief Justice K G Balakrishnan and Justices B Sudershan Reddy and P Sathasivam. The CJI and Justice Sathasivam said the only way out for RNRL and RIL was to begin renegotiation of the GSMA. It also killed the possibility of any cheap gas for RNRL by attaching a large number of conditions affirming the dominance of the government’s role and its policies in the framing of any fresh agreement between RIL and RNRL.

Justice Satashivam, writing the 118-page majority judgment, said: ‘‘While renegotiating the terms of GSMA, the following must be kept in mind: a. The terms of the PSC shall have an overriding effect; b. The parties cannot violate the policy of the government in the form of GUP and national interests; c. The parties should take into account the family MoU (memorandum of understanding), even though it is not legally binding. MoU is a commitment which reflects the good interest of both parties; d.Parties must restrict their negotiations within the conditions of government policy as reflected in GUP and EGoM decisions