Court agrees high gas price will push power, fertiliser costs

December 2nd, 2009 - 5:16 pm ICT by IANS  

New Delhi, Dec 2 (IANS) The Supreme Court Wednesday agreed with the argument by Reliance Natural Resources Ltd (RNRL) that the high price for the Krishna-Godavari gas will add to the costs of power and fertiliser units, and even burden the government with extra subsidies.
“Yes, it will go up,” observed a three-member bench of the apex court as RNRL counsel Mukul Rohatgi sought to explain how the higher price for the gas to be supplied by Reliance Industries Ltd (RIL) to priority sectors will push up their costs.

Rohatgi had also sought to explain how electricity tariff may even shoot up to Rs.15 per unit, even though there had been a hue and cry in a city like Delhi when the power tariff had been hiked 25 percent to Rs.5 per unit.

“The government will be left to subsidise the prices of power and fertilisers,” the RNRL counsel told the bench of Chief Justice K.G. Balakrishnan, Justice B. Sudershan Reddy and Justice P. Sathasivam.

The three-member bench has been hearing the dispute over the supply of 28 million units of gas for 17 years at $2.34 per unit to Anil Ambani-led RNRL from the gas fields off the Andhra Pradesh coast, awarded to Mukesh Ambani’s RIL.

The price, tenure and quantity were based on a 2005 family pact, but RIL subsequently said it could only sell the gas for $4.20 per unit, as this was the price, the company claimed, fixed by the government.

The Bombay High Court had earlier ruled in RNRL’s favour.

The RNRL counsel was also asked how his client proposed to use the gas as the Dadri power project in Uttar Pradesh, for which it was initially intended, was yet to be commissioned.

“Your plant is not ready. What will you do to the gas?” the bench queried.

Rohatgi said RNRL intended to procure the gas at $2.354, as originally agreed, and earn some profit by supplying it at $4.20 per unit to the same consumers to which RIL has been selling.

“It’s true the Dadri plant is not ready and will not start before another three years or so,” Rohatgi said, adding: “I can re-supply the gas to the same consumers whom the RIL is supplying and make a profit.”

This, he said, would “only be a pro tem arrangement” and would compensate RNRL to some extent because RIL was responsible for delaying the Dadri project. The court had already been told that the delay was because RIL had failed to deliver a bankable agreement for gas to Dadri.

Rohatgi said RIL has to supply gas to RNRL only for 17 years for the Dadri plant and if it starts supplying now, the profit earned by RNRL at the beginning could be used for buying the fuel for the last three years of the supply tenure.

He also explained to the court that early supply of gas was crucial not only for RNRL but also the three million shareholders of the undivided Reliance empire, who were given RNRL shares to compensate for the split in the company.

“Reliance Natural Resources is nothing without the gas.”

Rohatgi also refuted RIL’s argument that gas supplies at $2.34 per unit would entail a loss of Rs.25,000 crore, saying as per estimates by the Directorate General of Hydrocarbons, the cost of Krishna-Godavari gas was $1.28 per unit.

“It’s a case of less profit and not a case of loss.”

In any case, the government never questioned the proposed supply of gas to the Dadri project and state-run power utility NTPC by RIL at $2.34 per unit in 2004 while approving the initial development plan in November that year, he added.

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