The Hindu Business Line : Dadri, Patalganga projects: Reliance to supply gas at $3.18

RELIANCE Industries Ltd has entered into an agreement with Reliance Natural Resources Ltd (RNRL), one of the four demerged companies now in the Anil Dhirubhai Ambani Enterprises fold, to supply up to 28 MMSCMD of gas at $3.18 per MMBTU.

The deal, signed on January 12, has been termed a "gas supply master agreement" as it will set the ground rules for routine gas supply agreements to be signed between RIL and Reliance Energy Ltd for its Dadri power project and with Reliance Patalganga Power Ltd.

As per the draft information memorandum filed by RNRL (formerly Global Fuel Management Services Ltd) with the stock exchanges this week, the price to be paid by RNRL comprises three components: 1) commodity price of $2.34 per MMBTU; 2) marketing and risk management charge of $0.12 per MMBTU; and 3) transportation cost of $0.72 per MMBTU.

Interestingly, the price at which gas is being made available to Dadri and Patalganga power projects is above the $2.97 per MMBTU price at which RIL has agreed to supply gas to the Kawas and Gandhar power projects of National Thermal Power Corporation. The matter is pending in Bombay High Court as NTPC has sought a direction for RIL to sign gas sales and purchase agreement and also to restrict the company from entering into gas supply contract with any other party.

The agreement states: "Affiliate of RNRL owning gas-based power plant has a right to contract up to 28 MMSCMD of gas from all NELP and CBM blocks awarded to RIL as of June 18, 2005, under base volume gas sale purchase agreements from RIL's entitlement of gas. The quantity of gas available for sale by RIL is to be arrived at after providing for gas required for production and transportation, share of Government of India and other constituents and gas committed to NTPC at 12 MMSCMD for 17 years."

If the gas available from these blocks exceeds 53 MMSCMD, the RNRL affiliates would have the first right of refusal, initially up to another 16.67 MMSCMD and thereafter for 40 per cent of gas available beyond 69.67 MMSCMD at prices to be mutually decided. The agreement, however, would be subject to the necessary Government approvals under the production sharing contract executed by RIL.

However, the agreement with RNRLdoes not require RIL to produce gas in quantities that would adversely affect its ability to meet obligations under the NTPC gas supply purchase agreement for the full term. Neither does it require RIL to incur any liability while exploring or developing the said blocks or accelerate/delay/modify its schedule. Also, RNRL will not be entitled to make any claim against RIL for breach of any `upstream arrangement' or failure to follow any `development plan'.

Moreover, the agreement does not impose upon RIL "from relinquishing all or a portion of its interest in any of the subject blocks". And, the terms of this agreement shall not apply to such relinquished or assigned interests.

The other rider is that all gas supplied by RIL to RNRL shall be used only for generation of power by gas-based power projects owned by the affiliates of RNRL and cannot be sold or traded for profit.

It may be recalled that gas supply to the Dadri power project was one of the major issues in the stand-off between the Ambani brothers.

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