The Hindu Business Line : Pooling of prices for gassified LNG upheld

In an important development, the Gujarat High Court has rejected the plea by State-owned Gujarat State Petroleum Corporation Ltd (GSPC) for cancellation of the Union Government's notification facilitating pool pricing of gassified liquefied natural gas.

A three-member Bench comprising Mr Justice D.A. Mehta, Mr Justice J.C. Upadhyaya and Mr Justice D.N. Patel ruled against GSPC's contention by a majority of 2-1, and upheld the Centre's decision to make a policy change even in existing contracts. GSPC is likely to go in for an appeal against the ruling.

GAIL (India) had last year announced pooling the price of long-term LNG landing at the Dahej (Gujarat) facility of Petronet LNG Ltd with that of spot cargo landing there, enabling GAIL to sell LNG to its existing buyers as well as the Ratnagiri Gas and Power Ltd (erstwhile Dabhol) in Maharashtra at an average price of spot LNG and contracted LNG. This was opposed by the existing buyers.

While GSPC challenged in the Gujarat High Court the order raising LNG prices for existing Petronet customers, Essar Steel Ltd challenged in the Delhi High Court the directive to average the longterm LNG price of Petronet with the high-cost, short-term fuel purchase for Ratnagiri.

The High Court's Division Bench comprising Chief Justice Y.R. Meena and Mr Justice Akil Kureshi had in its September 2007 order differed on the issue.

While tThe Chief Justice's order held that the Centre had the a right to implement a new policy and, as since it was a policy decision, its legitimacy, even in the light of fixed-price and fixed-term contract between GSPC and GAIL, could not be disputed before the Gujarat High Court. Hence, the Court could not entertain GSPC's plea seeking a stay on the Centre's decision of pooling gas prices.

Mr Justice Kureshi, on the other hand, maintained in his order that the Court could grant a stay on pooling of gas prices, because the decision affected end-users in long-term contracts. As Since the promise was not kept, there should be an arrangement between GSPC and GAIL and others in such a way as to provide providing security for the loss being borne by the gas recipients of gas. Hence, a stay should be granted on the new pricing mechanism, which tends to incur a loss exceeding of more than Rs 300 crore for GSPC.

Earlier, a single-judge Bench of the High Court had, in July 2007, stayed the Centre's notification on pool pricing of gas to be supplied to the Ratnagiri project. Following this, power generation at Ratnagiri came to a halt from August 1, 2007, as MahaVitaran, the sole procurer of the power, expressed its inability to sell power at a tariff of Rs 4.50 a per unit.

Seeking vacation of this stay, Indian Oil Corporation Ltd (IOC), Gail (India), Bharat Petroleum Corporation Ltd (BPCL) and Petronet LNG had filed an appeal with the Supreme Court, which vacated the stay did so on August 22, 2007, directing that a Division Bench of the High Court would hear all petitions on September 10, 2007.

It also allowed the Maharashtra Government and Maharashtra State Electricity Distribution Company Ltd (MahaVitaran) to be interveners in the case and file their replies before the fixed this date.

Added cost

According to sources in the Gujarat Government, the rise in LNG prices due to pooling would cost GAIL customers in Gujarat heavily, to the tune of Rs 380 crore. These They include State-owned units PSUs like GSPC, Gujarat Alkalies and Chemicals Ltd (GACL), Gujarat State Fertilizers Corporation (GSFC), Gujarat Narmada Valley Company Ltd (GNFC), Gujarat Industries Power Corporation Ltd (GIPCL), as and also power plants at Uttran and Dhuvaran. The IOC and BPCL customers - GSPC and Essar Steel - meanwhile would be required to cough up an additional Rs 370 crore due to pool pricing.

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