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Updated: October 23, 2009 00:57 IST

At lower fuel rates, RIL will take longer to recover investment: Salve

J. Venkatesan
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The Hindu

Reliance Industries Ltd. will take more time to recover its investments in the gas field if it is forced to sell fuel at lower rates, its senior counsel Harish Salve argued in the Supreme Court on Wednesday.

“RIL will take five to five-and-a-half years to recover the $5.8 billion investment made in the KG-D6 gas field if it sells the fuel at government-approved price of $4.205 per mmBtu,” Mr. Salve said in his submission before a three-judge Bench comprising Chief Justice K.G. Balakrishnan, Justice R.V. Raveendran and Justice P. Sathasivam, hearing the gas dispute between the Ambani brother companies.

He said it was not possible for RIL to supply 28 mmscmd gas to RNRL for 17 years as the peak output from the field would not last more than seven years. The company could not accelerate or decelerate the rate of production as that would damage the reservoir and affect the ultimate recovery.

“If RIL is forced to sell gas at a lower rate of $2.34 per mmBtu to RNRL, the cost recovery would take over seven years,” Mr. Salve said. Anil Ambani Group firm’s Samalkot power plant in Andhra Pradesh was buying gas from KG-D6 at the government-approved rate of $4.2 per mmBtu, but was making a hue and cry in the case other plants.

Mr. Salve said that the Memorandum of Understanding between the two companies was not worth the paper on which it was written and nothing would emerge from it.

At this juncture, Justice Raveendran asked Mr. Salve to show that the de-merger of the Reliance Natural Resources Limited (RNRL) from RIL was not on the strength of the MoU. The Judge pointed out that the Bombay High Court in its judgment had stated that de-merger of the RNRL from the RIL was based on the MoU.

Family arrangement

Justice Raveendran wanted to know if the MoU signed in 2005 for dividing Reliance’s assets, including gas, was placed before RIL shareholders. Mr. Salve said it was not placed before the shareholders, the board or the creditors and that it was more a private family arrangement rather than a company arrangement.

Mr. Salve said that an agreement that was not placed before the shareholders, creditors or even the RIL could not be sustained under the Companies Act. “The MoU does not gain sanctity merely because it was in the personal knowledge of the individual directors on the RIL Board. The MoU was subject to a host of approvals, including one from the government.” He said the government had the right to know about the agreement between Ambani brothers where natural gas, a national asset, was being distributed.

He said the government was a dominant player in the Production Sharing Contract (PSC) and, through its instrumentalities, it had even a veto power on the production, distribution and pricing of the gas. The RIL was asking the government to honour its earlier promise to give commercial freedom to market the gas, but it could not prevail upon it.

Mr. Salve said that the government by bringing the gas utilisation policy in 2007 had snatched RIL’s marketing and pricing freedom. Giving itself the power to approve the price and fix consumers for gas by the government was an unreasonable clause. RIL had vehemently protested against the government taking away its freedom, but Anil Ambani group had sought regulation of fuel sale through a gas utilisation policy in 2007.

Counsel’s request

During the post-lunch session, both Mr. Salve and senior counsel Ram Jethmalani appearing for the RNRL, requested Justice R.V. Raveendran to ignore news reports about his presence on the Bench after he disclosed that he owned shares in both the companies. “It is a joint request to ignore an article published in a newspaper,” both the counsel said. The article suggested that judges having financial interest in any party should automatically recuse himself from the case.

Before the commencement of hearing on October 20, Justice Raveendran told counsel for the parties that he had shares in both the companies and he would recuse himself if counsel had any objection to his hearing the case.

The counsel said that the article should be treated as contempt and Justice Raveendran should continue hearing the matter. Thereafter the hearing resumed.

Arguments will continue on October 27.

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