A prolonged legal battle between public sector power major NTPC and Reliance Industries Limited (RIL) over the supply of gas may cost the nation dear.
December 29, 2005 (Press Release) --
A prolonged legal battle between public sector power major NTPC and Reliance Industries Limited (RIL) over the supply of gas may cost the nation dear.
The delay in the signing of the GSPA between the two has already jeopardized NTPC’s 10th plan schedule for commissioning of 2600 MW of additional power capacities at Kawas and Gandhar in Gujarat because, pending the signing of the GSPA, NTPC has not been able to place the ‘letter of award’ to companies which were to set up the two expansion projects of 1300 MW each.
In fact, the NTPC-RIL spat has compounded the snag in the development of the KG basin gas field by RIL. The company is now committed to start the supply of gas from January 2008, against mid-2007 indicated earlier.
But a prolonged legal battle between NTPC and RIL may cause an irreparable damage to the nation. According to experts, there is an annual loss of 4 to 6 per cent in the pressure—and hence in the overall recovery--of gas or oil, once a reservoir is opened up for exploration or production. RIL has announced that, irrespective of the present controversy, they are going ahead with their own upstream and pipeline project with an investment of $ 6 billion.
The stand-off between NTPC and RIL is mainly on the question of the latter’s ‘unlimited liability’ under the GSPA in the event of gas supply getting interrupted for any reason. Even while accepting the letter of intent placed by NTPC, RIL is reported to have insisted that this ‘unlimited liability’ clause be amended, so that the company’s liability is capped at a maximum of 175 per cent of the delivered price of gas.
NTPC, on the other hand, maintains that there was no difference of opinion about the original terms of the draft GSPA, while RIL has produced documents to show that this point had been raised by them even while accepting the letter of intent from NTPC and subsequently, too..
‘’While accepting LOI, RIL suggested that acceptance was based on the premise that outstanding provisions of the GSPA will be addressed between RIL and NTPC,’’ say RIL sources.
They add: “Throughout the bid process, it was common perception that the terms of the draft Gas Sales & Purchase Agreement tabled by NTPC were entirely in favour of NTPC and totally prejudicial to the interests of the gas supplier, making the contract impractial and, from the gas suppliers’ point of view, totally unworkable.”
In fact, the contract being effective only upon successful financial closure, RIL approached potential lenders, who unanimously shared RIL’s concern and felt that financing such a contract would be extremely difficult, if not impossible, on any commercially viable terms. Hence, RIL insists that the proposed contract should be ‘bankable’.
If RIL wanted to wriggle out of the contract, as is stated in some quarters, it could have done so just by paying the bid money of Rs 20 crore, against the much higher loss of supplying gas at one-third the current market price. But the company did not do so and instead kept asking NTPC to make the GSPA more balanced.
The delay in the signing of the GSPA between the two has already jeopardized NTPC’s 10th plan schedule for commissioning of 2600 MW of additional power capacities at Kawas and Gandhar in Gujarat because, pending the signing of the GSPA, NTPC has not been able to place the ‘letter of award’ to companies which were to set up the two expansion projects of 1300 MW each.
In fact, the NTPC-RIL spat has compounded the snag in the development of the KG basin gas field by RIL. The company is now committed to start the supply of gas from January 2008, against mid-2007 indicated earlier.
But a prolonged legal battle between NTPC and RIL may cause an irreparable damage to the nation. According to experts, there is an annual loss of 4 to 6 per cent in the pressure—and hence in the overall recovery--of gas or oil, once a reservoir is opened up for exploration or production. RIL has announced that, irrespective of the present controversy, they are going ahead with their own upstream and pipeline project with an investment of $ 6 billion.
The stand-off between NTPC and RIL is mainly on the question of the latter’s ‘unlimited liability’ under the GSPA in the event of gas supply getting interrupted for any reason. Even while accepting the letter of intent placed by NTPC, RIL is reported to have insisted that this ‘unlimited liability’ clause be amended, so that the company’s liability is capped at a maximum of 175 per cent of the delivered price of gas.
NTPC, on the other hand, maintains that there was no difference of opinion about the original terms of the draft GSPA, while RIL has produced documents to show that this point had been raised by them even while accepting the letter of intent from NTPC and subsequently, too..
‘’While accepting LOI, RIL suggested that acceptance was based on the premise that outstanding provisions of the GSPA will be addressed between RIL and NTPC,’’ say RIL sources.
They add: “Throughout the bid process, it was common perception that the terms of the draft Gas Sales & Purchase Agreement tabled by NTPC were entirely in favour of NTPC and totally prejudicial to the interests of the gas supplier, making the contract impractial and, from the gas suppliers’ point of view, totally unworkable.”
In fact, the contract being effective only upon successful financial closure, RIL approached potential lenders, who unanimously shared RIL’s concern and felt that financing such a contract would be extremely difficult, if not impossible, on any commercially viable terms. Hence, RIL insists that the proposed contract should be ‘bankable’.
If RIL wanted to wriggle out of the contract, as is stated in some quarters, it could have done so just by paying the bid money of Rs 20 crore, against the much higher loss of supplying gas at one-third the current market price. But the company did not do so and instead kept asking NTPC to make the GSPA more balanced.
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