The Hindu Business Line : No case for Govt

Reliance Natural Resources Limited (RNRL) would be entirely justified in contending that the Government has no basis for opposing the contract for natural gas supply that it has entered into with Reliance Industries (RIL). On the face of it, the Government's opposition, if true, would tantamount to conferring to itself the right of veto over any commercial contract lawfully entered into between two companies. The Government's principal objection appears to be that the terms of the gas supply could lead to revenue loss as mineral royalties payable on the extraction of natural gas are calculated as a percentage of the sales revenue.

In the instant case, the Government has argued that the price negotiated by Reliance with RNRL is at a considerable discount to the market price and it has in support cited Reliance's quote for a similar supply to the public sector Gas Authority of India Ltd from the Panna-Mukta oilfields that is twice as high. For such a comparison to be valid, it is important that the terms of the supply contract are identical. The distinction is crucial as in a commodity as volatile as natural gas the advantage of a lower price (whether spot or some other benchmark) in a particular period can be easily nullified by the price behaviour in a subsequent time-frame. RNRL's contention then ought to be factored into, should the Government seek to intervene in the matter. But that apart, RNRL's case for preserving the present terms of the contract rests on another equally powerful argument. Its contention is that the supply contract was integral to the scheme of arrangement leading to the demerger of a clutch of RIL businesses into independent and listed companies. If the terms of the re-organisation were in any way inimical to the interest of the minority shareholders of RIL, implicit in the argument that the gas supply contract was negotiated at a discounted price, then the Government ought to have intervened when the High Court was hearing RIL's petition for confirming the re-organisation. Having failed to do so then, it would stand accused of being churlish by opposing it now.

If the Government wants to secure its revenues, it has far simpler options. It can, even at this stage, nullify the effect of the contract by establishing, with corroborative evidence, that it was not concluded strictly on arm's-length basis. Alternatively, it has the option of structuring the ad valorem rate for royalties on an assessable value that in its opinion best reflects the contract. By claiming that it is opposed to the contract on the present evidence, the Government is raising a controversy and, worse, risks being accused of playing politics in the commercial arena.

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RNRL defends gas supply pact with RIL

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