RNRL wins gas supply dispute; stock up 20%

[B. Karthick]

MUMBAI: Shares of Reliance Natural Resources surged 20 per cent on
huge volumes Monday after the Bombay High Court pronounced the
judgment in favour of the company in the long-standing RIL-RNRL gas
supply agreement dispute.

Bombay High Court has now given a month’s time to both parties to come
to enter into an agreement. The court has asked Reliance Industries to
sell gas to RNRL for 17 years at $2.34/MBTU.

By the gas supply master agreement, RIL was supposed to supply natural
gas from the Krishna-Godavari basin to RNRL, to be used for the Anil
Ambani group's power generation plant at Dadri in Uttar Pradesh. The
GSMA came into existence in January 2006, following the demerger of
the Reliance group. But both the sides differed on its terms related
to the quantity of gas to be supplied, price, and duration of supply.

In December 2006, RNRL moved the Bombay High Court asking it to compel
RIL to honour the gas agreement. Justice Anup Mohta, who heard the
case, asked the companies to settle the matter internally under the
June 2005 family agreement. The judge also restrained RIL from selling
gas to third parties till the final order.

Unable to agree on the price, terms and quantity of gas, both firms
approached the division bench of the Bombay High Court against the
order of the single bench in early 2008. The hearing of the matter
continued till February 2009. Thereafter, the division bench came out
with an interim order allowing RIL to sell gas to third parties. The
interim verdict also mentioned that RIL’s gas agreement with others
would be subject to the court’s final order.

The basic argument in the RIL-RNRL case pertains to the pricing and
quantum of gas. During the course of hearing, RNRL made it clear that
it wanted 28 million metric standard cubic meters per day of gas for
17 years for $2.34 per million metric British thermal unit (mmBtu),
while RIL argued that it could not sell gas below the government-
approved price of $4.2 per mmBtu.

At 11:15 am, shares of RNRL were up 20 per cent at Rs 105 while RIL
shares fell 4 per cent to Rs 2258.

B.Karthick
Research Analyst