As expected, the much awaited High Court judgement went in favour of RNRL. The HC has directed Reliance Industries (RIL) to supply 28 metric standard cubic metre per day (mmscmd) of gas at US $ 2.34 per million metric British thermal unit (mmbtu), for a period of 17 years.
The repercussions of this landmark judgement:
2. RIL, throughout its arguments before the court, had maintained that gas could not be supplied to RNRL or any other company for lesser than $4.20/mmbtu, as the price has been decided by the Empowered Group of Ministers. But now, with the HC deciding on a much lower price, it is quite evident that RIL would knock the doors of the Supreme Court.
3. RIL pays royalty and profit sharing levies to the Govt at the rate of $4.20/mmbtu. But with it now selling gas to RNRL at $2.32/mmbtu, would RIL still continue to pay the various levies to the Govt at the higher rates?
4. RNRL currently does not have gas based power plants ready, so till such time that it gets to use 28 mmscmd of gas, where will this gas be used? RNRL can use this gas to trade within the group companies and now this gas would thus be made available to Reliance Power and this is great news for Reliance Power. Firstly, it will fast track the power projects – Dadari and Shahpur, and this availability of gas at such a lower rate, would ensure a saving of almost Rs.3500 crore on its raw material costs, resulting in an equivalent rise in its profitability.
5. The capex outlay of RIL has been increased from $ 2.47 billion to $ 8.8 billion, with increase in estimated production also, from 5.3 trillion cubic feet (tfc) of recoverable reserves at a plateau production of 40 MMSCMD now to 11.3 tcf and plateau production of 80 MMSCMD. With this pricing rule now coming in, how does RIL make up for the increase in capex?
6. What happens to 40% claim of RNRL on excess production by RIL from K G Basin, beyond 40 MMSCMD? RNRL may have to contest strongly, to push for this claim of overflow capacity and also on the 12 mmscmd, if not supplied to NTPC.
7. The HC asked RIL to arrive at an arrangement along these lines within a month. And it has also ruled that the Ambani brothers may consult their mother, Kokilaben, if there is any difficulty in arriving at a conclusion as the MoU provides for this. This once again proves that the Court has upheld the supremacy of the role of mother.
8. Govt has stated that RIL will have to sign the gas supply master agreement (GSMA), if RIL goes with this pricing of $2.34/mmbtu.
The biggest positive of this ruling, more than RNRL is actually for Reliance Power. With assured supply of gas and that too at such a lower price, will go a long way in improving the profitability of the company.