RIL, NTPC may settle gas supply dispute out of court

India’s most valuable company Reliance Industries (RIL) and Asia’s largest power producerNTPC may settle their five-year-old legal battle over a contract to supply natural gas from RIL’s field in the Krishna-Godavari basin to the state-owned power utility. 

NTPC took RIL to the Bombay High Court in 2005, complaining that RIL was not honouring a contract to sell 12 million standard cubic metres a day (mmscmd) of gas to its Kawas and Gandhar expansion projects in Gujarat for 17 years at $2.34 per unit. 

RIL contended the contract was not concluded. Industry sources and government officials with direct knowledge of the matter confirmed the willingness of both firms to settle the issue out of court. 

“There is some thinking in favour of an out-of-court settlement,” said a Union minister, who did not want to be quoted because of the sensitivity of the matter. 

While the two parties were locked in a court battle, the government finalised a gas allocation policy and fixed 

the price for RIL’s KG Basin gas at $4.20 per unit, which is higher than what NTPC was trying to enforce. 

An NTPC board member, who requested anonymity, said the company, facing a scarcity of gas, was willing to pay even $4.20 per unit to get the fuel to commission the Kawas and Gandhar expansion projects to add 2,600 MW to its capacity by 2012. The oil ministry maintains that the government-approved price of $4.2 per unit would be applicable to all buyers, including NTPC. RIL had not taken its formal approval to supply gas to NTPC at $2.34 per unit, an oil ministry official said. 

RIL’s KG-D6 gas price was derived on the basis of a government-approved formula on September 12, 2007, for five years. At current global crude oil prices, the price of KG-D6 gas is $4.20 per unit. 

A spokesperson of RIL declined to comment, saying the matter was subjudice. In reply to ET’s email query on making any formal move for truce, RIL’s spokesperson said: “NTPC has not approached the government for an out-of-court settlement in regard to its case over KG D-6 gas supply.” 

A former chairman of NTPC, who was involved in the disputed gas deal and court case, said: “NTPC itself can’t take a decision for an out-of-court settlement. Yes, the power ministry can do so through a directive (to NTPC).” NTPC is already buying 2.3 mmscmd gas from RIL’s KG-D6 basin for its other plants. It has a fair chance of getting priority fuel allocation for Kawas and Gandhar projects, according to various government undertakings in the past. The government determines consumers of gas according to sectoral priority determined by an Empowered Group of Ministers (EGoM).