Evolving policy to limit Ambani gas deal scope

The power ministry is working on a new gas linkage policy,which is expected to give priority in gas allocation to power projects by the central and state governments. The proposed policy is akin to the one existing in the coal sector. The fertiliser department,on its part,is preparing a new urea investment policy,which proposes long-term gas allocation at subsidised prices to attract investments in new urea plants. For this,gas from blocks contracted under the Nelp such as RIL’s KG D-6 would be utilised. Gas from the nominated blocks of state-owned explorers like ONGC (APM gas),is not considered for supply under the urea investment policy.

“An evolving gas allocation policy would restrain the parties from deciding the substantive issues of supply bilaterally,” said a senior executive of one of the companies,who asked not to be named.

“The gas supply agreement of the companies has to be in line with the policy of the day. Otherwise,it would be a repeat of the past,” a government official told FE,when asked how firm the proposed deal between RIL and RNRL could be. It may be noted that the apex court had affirmed the supremacy of even retrospective policy action over private arrangements.

On May 23,the Ambani brothers announced that they had reached an agreement to scrap the 2006 no-compete pact between them,giving both groups the freedom to enter areas that were hitherto the other’s preserve.

The oil and gas practice head at a leading advisory firm said it is very much possible for the companies to sign a supply deal on arms-length basis,subject to the final gas utilisation policy. Angel Broking’s oil and gas analyst Deepak Pareekh said it would be difficult to second-guess what would be the supply agreement that the Ambani brothers may agree upon,although it is clear that the terms have to be as per government norms.

While the pricing,the term and the quantum of supply would be as per government policy,one issue that would come up for bilateral negotiations is whether the supply deal should cover future gas discoveries of RIL too. The original family MoU encompassed future discoveries too,which meant that gas was to be supplied to RNRL at the privately-agreed price in future as well. A government official told FE that the Bombay High Court decision which gave effect to the family MoU,had revealed that the agreement had “appropriated the entire gas — not only from K-G D6 field,but from all fields being operated and to be operated by RIL in future between the parties.”

The government had earlier said that it would make “necessary (gas) allocation” from the KG D-6 field to Reliance Power’s proposed Dadri Power project subject to the availability and after receiving necessary clearance and permission when it is ready for production.