Talks between both parties inconclusive
Reliance Industries Ltd ( RIL) will continue to supply gas at $ 4.2 a unit to 16 fertiliser units until the government comes out with another notification in this regard.
This follows the government asking RIL to continue supplies on existing terms in the interim period, after talks between both the parties remained inconclusive. Sources said the primary issue between both the sides was pricing.
A new agreement was necessary, as existing gas sales purchase agreements (GSPAs), signed in 2009, has expired.
While fertiliser companies wanted to continue with a price of $ 4.2 per million British thermal units ( mBtu), RIL wanted to calculate it according to a formula suggested by a committee headed by C Rangarajan. Through this formula, a price of $ 8.4 per mBtu was arrived at. This was to have come into effect in April, but was postponed by the Election Commission due to the model code of conduct ahead of the elections. As such, the new pricing will be delayed by at least two months, as a new government is expected to take charge only by June.
“Currently, RIL supplies 13.5 million standard cubic metres a day ( mscmd), valued at Rs 12 crore (Rs 4,400 crore annually), to 16 fertiliser units,” said a Mumbai- based analyst. A delay of two months in the implementation of the new price means a loss of at least Rs 720 crore. Sources said while RIL wanted a new price, fertiliser companies wanted to bring in a letter of credit for $4.2 a unit during the period the model code of conduct was in place.
“RIL will continue the supply for an interim period at the government-notified price and marketing margin,” said Satish Chander of the Fertiliser Association of India. During this period, both parties are likely to arrive at a consensus on GSPAs, as well as their contentious issues.
The new pricing formula was notified by the Ministry of Petroleum and Natural Gas on January 10 this year.
After the Election Commission had asked the government to keep the gas price rise on hold, the Centre had, come out with a notification that said the earlier applicable gas price would continue till further orders. This meant the Rangarajan formula would not be applicable now.
Currently, RIL has 50 GSPAs for KG- D6 gas in the core sectors of liquefied petroleum gas, fertiliser, power and city gas sectors; these were signed in 2009.
SC recalls decision to appoint Oz judge in KG-D6 arbitration
The Supreme Court has withdrawn its decision of appointing former Australian judge James Jacob Spigelman as the third arbitrator to head a three-member arbitration panel for the ongoing dispute between Reliance Industries (RIL) and the government over fall in gas production in Krishna Godavari (KG) D6 basin.
A bench headed by Justice S SNijjar recalled the order after the government counsel cited that the name of Spigelman, a former Chief Justice and Lieutenant Governor of New South Wales, figured in the list of seven probables suggested by RIL for appointment as the third arbitrator. He indicated however that the court would soon appoint a new arbitrator in place of Spiegelman.
The apex court had appointed Spigelman as the third arbitrator saying that there was a need for a foreign arbitrator in the RIL-government case to avoid bias.
The counsel argued that the apex court should have preferred someone who was not in the list of probables suggested by either the government or by RIL. The private refiner and the government had nominated former chief justices
S P Bharucha and V N Khare, respectively, but were divided on the selection of the third arbitrator.
Earlier, Justice Nijjar had said that both the Centre and RIL provided the list of eminent foreign arbitrators but he preferred to conduct his own survey for maintaining neutrality and chose the name of Justice Spigelman.
“Although two lists have been duly supplied by the learned counsel for the parties, I am of the opinion, in the peculiar facts and circumstances of this case, it would be appropriate if an individual not named by any of the parties is appointed as the third arbitrator. I have discretely conducted a survey to find a suitable third arbitrator who is not a national of any of the parties involved in the dispute,” he had said.
It appears that the name of the Australian arbitrator was present in the list supplied by RIL, which might have been overlooked by the judge.
On Tuesday, the Mukesh Ambani-owned company had welcomed the Supreme Court’s decision saying that with the constitution of the ‘Arbitration Tribunal’, the path had been cleared for a speedy resolution of various disputes relating to the KG D6 block.
Analysts agreed that this was one more negative news for the company.
SP Tulsian, an independent expert on RIL, said, “It’s definitely negative for the stock as it will further delay the procedures. However, it must be noted that negative news have not affected the stock much in the recent past.”
Despite the deferment of gas price hike and allegations over collusion between the company and the government by Aam Aadmi Party leader Arvind Kejriwal, shares of Reliance Industries have risen by 19% to Rs 958 in the past one month, where as Nifty has risen 8.5% in the same period.
RIL had initiated the arbitration process against the government in November 2011 after the government slapped a penalty amounting to $1.8 billion against the company for falling way short of the 80 million metric standard cubic metre per day (mmscmd) production target and being denied of cost recovery.
Since then, the government and RIL could never decide on the presiding arbitrator. While the Mukesh Ambani-owned company wanted a third arbitrator of foreign origin, the government wanted to have someone from Indian origin as the issue was domestic. RIL wanted an arbitrator of foreign origin from “a country other than India, UK or Canada”, as its other contract partners-- Cayman Islands-based Niko and BP Exploration, are foreign companies.
RIL has been struggling to arrest the decline in natural gas output from the block citing technical problems. Gas output from the KG D6 block was targeted at 80 mmscmd, but after reaching 69.43 mmscmd in March 2010, the production has dwindled to around 12 mmscmd at present. Gas produced from the block was earmarked for major power and fertiliser companies.
Reliance Industries Ltd ( RIL) will continue to supply gas at $ 4.2 a unit to 16 fertiliser units until the government comes out with another notification in this regard.
This follows the government asking RIL to continue supplies on existing terms in the interim period, after talks between both the parties remained inconclusive. Sources said the primary issue between both the sides was pricing.
A new agreement was necessary, as existing gas sales purchase agreements (GSPAs), signed in 2009, has expired.
While fertiliser companies wanted to continue with a price of $ 4.2 per million British thermal units ( mBtu), RIL wanted to calculate it according to a formula suggested by a committee headed by C Rangarajan. Through this formula, a price of $ 8.4 per mBtu was arrived at. This was to have come into effect in April, but was postponed by the Election Commission due to the model code of conduct ahead of the elections. As such, the new pricing will be delayed by at least two months, as a new government is expected to take charge only by June.
“Currently, RIL supplies 13.5 million standard cubic metres a day ( mscmd), valued at Rs 12 crore (Rs 4,400 crore annually), to 16 fertiliser units,” said a Mumbai- based analyst. A delay of two months in the implementation of the new price means a loss of at least Rs 720 crore. Sources said while RIL wanted a new price, fertiliser companies wanted to bring in a letter of credit for $4.2 a unit during the period the model code of conduct was in place.
“RIL will continue the supply for an interim period at the government-notified price and marketing margin,” said Satish Chander of the Fertiliser Association of India. During this period, both parties are likely to arrive at a consensus on GSPAs, as well as their contentious issues.
The new pricing formula was notified by the Ministry of Petroleum and Natural Gas on January 10 this year.
After the Election Commission had asked the government to keep the gas price rise on hold, the Centre had, come out with a notification that said the earlier applicable gas price would continue till further orders. This meant the Rangarajan formula would not be applicable now.
Currently, RIL has 50 GSPAs for KG- D6 gas in the core sectors of liquefied petroleum gas, fertiliser, power and city gas sectors; these were signed in 2009.
SC recalls decision to appoint Oz judge in KG-D6 arbitration
The Supreme Court has withdrawn its decision of appointing former Australian judge James Jacob Spigelman as the third arbitrator to head a three-member arbitration panel for the ongoing dispute between Reliance Industries (RIL) and the government over fall in gas production in Krishna Godavari (KG) D6 basin.
A bench headed by Justice S SNijjar recalled the order after the government counsel cited that the name of Spigelman, a former Chief Justice and Lieutenant Governor of New South Wales, figured in the list of seven probables suggested by RIL for appointment as the third arbitrator. He indicated however that the court would soon appoint a new arbitrator in place of Spiegelman.
The apex court had appointed Spigelman as the third arbitrator saying that there was a need for a foreign arbitrator in the RIL-government case to avoid bias.
The counsel argued that the apex court should have preferred someone who was not in the list of probables suggested by either the government or by RIL. The private refiner and the government had nominated former chief justices
S P Bharucha and V N Khare, respectively, but were divided on the selection of the third arbitrator.
Earlier, Justice Nijjar had said that both the Centre and RIL provided the list of eminent foreign arbitrators but he preferred to conduct his own survey for maintaining neutrality and chose the name of Justice Spigelman.
“Although two lists have been duly supplied by the learned counsel for the parties, I am of the opinion, in the peculiar facts and circumstances of this case, it would be appropriate if an individual not named by any of the parties is appointed as the third arbitrator. I have discretely conducted a survey to find a suitable third arbitrator who is not a national of any of the parties involved in the dispute,” he had said.
It appears that the name of the Australian arbitrator was present in the list supplied by RIL, which might have been overlooked by the judge.
On Tuesday, the Mukesh Ambani-owned company had welcomed the Supreme Court’s decision saying that with the constitution of the ‘Arbitration Tribunal’, the path had been cleared for a speedy resolution of various disputes relating to the KG D6 block.
Analysts agreed that this was one more negative news for the company.
SP Tulsian, an independent expert on RIL, said, “It’s definitely negative for the stock as it will further delay the procedures. However, it must be noted that negative news have not affected the stock much in the recent past.”
Despite the deferment of gas price hike and allegations over collusion between the company and the government by Aam Aadmi Party leader Arvind Kejriwal, shares of Reliance Industries have risen by 19% to Rs 958 in the past one month, where as Nifty has risen 8.5% in the same period.
RIL had initiated the arbitration process against the government in November 2011 after the government slapped a penalty amounting to $1.8 billion against the company for falling way short of the 80 million metric standard cubic metre per day (mmscmd) production target and being denied of cost recovery.
Since then, the government and RIL could never decide on the presiding arbitrator. While the Mukesh Ambani-owned company wanted a third arbitrator of foreign origin, the government wanted to have someone from Indian origin as the issue was domestic. RIL wanted an arbitrator of foreign origin from “a country other than India, UK or Canada”, as its other contract partners-- Cayman Islands-based Niko and BP Exploration, are foreign companies.
RIL has been struggling to arrest the decline in natural gas output from the block citing technical problems. Gas output from the KG D6 block was targeted at 80 mmscmd, but after reaching 69.43 mmscmd in March 2010, the production has dwindled to around 12 mmscmd at present. Gas produced from the block was earmarked for major power and fertiliser companies.
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