Reliance industries found gas in KG basin in 2002. It is producing 31 million metric standard cubic metres per day (mmscmd), which is expected to hit.

Reliance industries found gas in KG basin in 2002.

It is producing 31 million metric standard cubic metres per day (mmscmd), which is expected to hit a peak of 80 mmscmd.

When the two brothers separated there was an MoU signed between the two brothers.

MoU ( Memorandum of Understanding)Signed on June 18, 2005.It entitles REL to 28 mmscd of gas from KG

Basin for 17 years at $2.34/mmbtu.Additionally if the contract b/w RIL & NTPC

does not materialise, then Anil’s side will also get NTPC’s share of 12 mmscd.

The MoU signed between the brothers says:

“Kokilaben recognises that a long-term,stable source of gas from RIL, which has the largest find of gas, was absolutely essential for the growth plans of the Anil Ambani group, and in order to enable Anil to carry REL to even greater heights. Kokilaben has,therefore specially stressed and impressed upon Mukesh (that he) shall personally ensure that at the time of finalization of the binding gas supply agreement the terms provide the required comfort and stability in these arrangements even if that means some departure from the NTPC standards.

1) Fertiliser : Ideal feedstock for urea production.2) LPG & Petrochem : Need to boost domestic

LPG production to reduce imports.3) Power Plants : All sources of energy, included

coal and gas, need to be harnessed to achieve 8-10% growth.

4) City Gas : Vital necessity for urban dwellers5) Refineries: Currently using costly alternatives

like Crude/ Fuel oil for processing and burning naptha.

6) Other Industies : Sponge Iron, Ceramic units.

ADA Group can get its Dadri and Shahpur plants ready within 30 months of securing gas supply.

Murli Deora Minister for Petroleum said in Parliament “ This (Dadri Power Plant) is neither installed nor

Functional”

The two prices being well haggled over are $2.34/mmbtu, at which Anil wants to buy 28mmscd over 17 years; RIL wants to sell at $4.2/mmbtu subject to revision after five years.

The difference of just under two dollars in the respective prices can result in profit or losses that run into billions of dollars.

The cost of production in the KG basin is $ 1.41 and at $ 4.20/mmbtu RIL will make huge profit.

He feels that the price of the gas should not be above $ 1.5/mmbtu .

$ 4.20 price has been determined by the govt. for its take as a part of PSC.

RIL will make a profit of Rs. 50,000 crore by pricing gas at $ 4.20.

RNRL will lose $ 1 Billion( Rs. 4,800 crore) over 17 years.

RIL is free to sell gas at any price it want to.

Never committed a price since it is subjected to govt. approval. Govt. has rejected the price of $2.34 in january 2006.

$4.22/mmbtu was approved by govt.$ 2.34 doesn’t compensate for cost

escalations.If govt. values gas at $ 4.2 for its profit share

and RIL has to sell it at $ 2.34, it could suffer a loss of $ 5 billion.

The MoU was not shared with the RIL board or its shareholders.

Reliance Industries Limited(RIL) had called for bids from various buyers in 2007.

The average bid made was $4.33/mmbtu.After minor tweaking the govt. approved the

price of $4.22/mmbtu.Govt.’s profit share will be calculated on the

govt. approved price only i.e. $ 4.22/mmbtu.More the income from gas sales, more the

profit.

Petroleum ministry says that the brothers are fighting over something that does not belong to them.

Article 297 of the Constitution of India lists petroleum as a resource, which Union of India has an authority over.

So Gas is owned by the govt., RIL can’t sell it unilaterally.

Price of $4.20 was approved by EGoM.Govt. can’t approve of the price lower than $ 2.34 (

as Anil suggested).Has objections regarding the MoU.

That the court has lent legitimacy to the family MoU has clearly rattled the government.

“…..Thereafter, for the entire future the balance reserves (including new discoveries of gas from new explorations and/or bids as may be submitted from time to time), the quantity of gas would, at the option of the Anil Ambani Group (exercised from time to time), be split in the ratio of 60:40 with 60% to the Mukesh Ambani Group and 40 per cent to the Anil Ambani Group.” (from the MoU)

NTPC was to be RIL’s first gas buyer.RIL has won the bid to supply 12 mmscmd of

gas to NTPC at $ 2.34/ mmbtu in 2003.The contract could never materialises because

of dispute over sharing of liablities.When NTPC bid was made there was no Anil

vs Mukesh.The Petroleum Ministry reprimanded RIL for

offering gas in this manner.

PSC was signed in 2000.Gas was found in 2002.Row began in 2005.In 2006 RNRL filed a case against RIL.IN october of 2007 the govt. approved

the market price at $4.2.The Bombay high court stepped in on

june 15, 2009 asking both companies to respect the MoU.

Mukesh Ambani’s company moved to Supreme court.

On 28th july Anil Ambani accused Murli Deora of helping Mukesh Ambani.

On 28th August SC defers hearing on Reliance gas row till Oct 20.

On 2nd september Tried to reconcile Ambani brothers, but failed: Deora

Government tells court it is not against Ambani pact.

On 9th september RIL bound to supply gas to us: Anil Ambani firm

Mukesh should compensate the govt. for loss of revenue from the supply of gas to Anil at $ 2.34/mmbtu.

Downside : Power companies currently buying gas at $ 4.20 could object over this.

RNRL gives up its demand for $ 2.34 but continues to have claim on 28 mmscmd gas share from KG Basin as well as 40% share in future discoveries by RIL.

Downside : Government of India has objections over Anil’s claim on future discoveries.

Allow complete freedom to RIL to price gas thereby repealing the govt. approved gas pricing formula.

Downside : RIL could supply gas to certain buyers at a price more than $ 4.2.

The Supreme court could annul the provisions of the MoU. It could ask RIL to compensate RNRL for non-supply of gas at $ 2.34/mmbtu.

Downside : ADA group’s new gas based plants are going to face delays.

Negative impact on the global investment inflow.

Firms like ExxomMobil, Chevron, British Gas & Shell expressed concerns.

Issues like lack of transparency are a cause of concern for the new investors.