Reliance Industries shares fall after gas supply ruling

[B. Karthick]

Shares in Reliance Industries fell as much as 6.1 percent after the
Bonbay High Court directed it to supply gas to Reliance Natural
Resources at lower than market prices.

Reliance Industries, which has the highest weightage in the main share
index, was asked to supply 28 million metric cubic metres a day for 17
years at $2.34 million per metric British thermal unit, the lawyer for
Reliance Natural said after the court ruling.

Shares in Reliance Natural soared as much as 23.4 percent to 107.70
rupees.

"Reliance Industries will have to supply gas at a rate lower than the
rate fixed by the government. They are going to incur a lower profit
for that much amount," said D.D. Sharma, vice president at Anand Rathi
Securities.

By 0616 GMT, Reliance Industries was trading 5.4 percent lower at Rs
2,228.95 after hitting Rs 2,213.55.

Reliance Industries is controlled by billionaire Mukesh Ambani while
Reliance Natural Resources is headed by his younger brother Anil
Ambani.

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.

B.Karthick
Research Analyst.