Loophole could allow NTPC to buy gas at discounted rate

While Reliance Natural Resources (RNRL) is undoubtedly licking its wounds following Supreme Court decision upholding the government’s right to approve price and utilisation of any gas transaction, the government’s general counsel in the case pointed to a loophole which could allow NTPC to still purchase gas at a discounted rate. Although the initial presumption from experts was that precedent would nix NTPC’s contract with Reliance Industries (RIL) to purchase gas at $2.34 per mmBtu, the government could still name NTPC as a government body eligible for procuring gas at a reduced price under the provisions of the product sharing contract (PSC).

Although recent ruling stated that private family agreements cannot override the government’s right under PSC, the guidelines also suggest that the government could point to NTPC as its arm which would allow the company to acquire gas at a reduced rate. NTPC has 84.5 per cent government stake. “The NTPC case stands on a totally different footing because NTPC is a public sector organisation while here was a contract between two private individuals; NTPC is an arm of the government,” said Mohan Parasher, Additional Solicitor General of India. “When the government itself is the owner of the resources and when NTPC is going to utilise it for public good, it can actually apply a different yardstick. Also, the profits which NTPC is going to make are not going to go into private pockets. So the government can apply a different yardstick.”

Although the window to salvage NTPC’s contract with RIL exists, experts said the likelihood of such government intervention is highly unlikely. “In NTPC’s case, it is held that the price promised by RIL was not approved by the government, and in that case they surely don’t stand a chance,” said Pricewaterhouse Cooper’s analyst Deepak Mahurkar. “But there is a provision under PSC Section 21.6.2 that says that the government can nominate an agency for taking gas a reduced price, but there is no explicit segment that said that agency can be a PSU.”

Doing so will set a dangerous precedent, Mahurkar said. “It will be an aberration,” he explained. “The government has the sovereign right to save face for NTPC, but typically the government does not get up and declare allocation.”