The Hindu Business Line : HC raps GAIL for collecting transportation fee from Essar

ESSAR Steel Ltd has got a major relief from the Gujarat High Court on the issue of paying transportation charges to GAIL (India) Ltd for gas moved in the private sector company's own pipeline.

A single judge Bench of the Gujarat High Court has upheld Essar's contention that GAIL was not entitled to levy transportation charges on 0.35 MMSCMD (million metric standard cubic metres daily) gas supplied to the company from a landfall point at Hazira. Essar Steel transports the gas in its own pipeline, while GAIL had claimed that the company was required to pay transportation charges as applicable for moving the gas through its HBJ pipeline.

The dispute arose in 1996 when Essar, which had been getting the gas on "fall back" basis (subject to availability), converted its contract to a "firm" (assured) supply of gas. At that time, Essar had agreed to pay the HBJ transportation charges subject to GAIL charging Government-determined prices as and when the New Pricing Order (NPO) came into effect. The NPO was subsequently issued by the Central Government on October 1, 1997 and did not provide for payment of HBJ transportation charges if the gas was not moved in GAIL's pipeline.

GAIL continues to maintain that Essar is liable to pay the HBJ transportation charges, while the private sector company contended that the earlier agreement got superseded once the NPO came into effect. GAIL had contended that the conversion of the allocation from fall back to firm basis was agreed on the promise that GAIL would not be deprived of revenues which it would have earned otherwise by supplying gas to downstream consumers as it involved an opportunity cost for the Government company.

Mr Justice K.S. Jhaveri of the Gujarat High Court, in a 100-page judgment, has upheld Essar's contention and directed GAIL to rework the gas prices according to the NPO and even pass on a 15 per cent discount on account of gas supplied on fall-back basis.

"The respondent (GAIL) should not have acted like a private company by charging transportation charges when the petitioner (Essar Steel) is transporting gas in its own pipeline," the judgment says. The Court has also restrained GAIL from levying any "disproportionate" metering charges and noted that the Government-owned company had included the transportation charges in the basic charges to avoid showing it under a separate heading. That amounted to changing the price structure.

The Court has also held that the allocation and pricing of gas is the prerogative of the Central Government and the role of GAIL was limited to "executing the quota of natural gas as fixed by the Central Government and to collect the costs and other service charges. GAIL cannot change the price structure fixed by the Central Government."

When contacted, a GAIL spokesperson said that they would appeal before a Division Bench.

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