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Friday, May 7, 2010

RIL RNRL Case Update - Verdict And What's Next?

The much awaited Reliance Industries-Reliance Natural Resources verdict is out. The court has upheld the Production Sharing Contract (PSC) and has redirected the warring factions to the negotiating table.

It has also ruled out the memorandum of understanding signed between the two brothers which says that for 17 years RIL has to supply gas to RNRL at USD 2.4 per barrel, which is lower than the government prescribed rate of USD 4.2 per barrel.

What is going to be renegotiated?
Harish Salve, Counsel for Reliance Industries, said as per the Empowered Group of Ministries ruling, the Dadri project cannot receive gas till the project is up. That will form part of negotiation and “also minor details like the cap on liabilities needs to be renegotiated.” The question is what would be RNRL's liabilities if it does not pick up the gas from RIL.

When asked about possible review of the judgment, RNRL Counsel Saurabh Kirpal refused to comment. “We are still awaiting clarity. It will take days to understand and analyse the entire judgment. Our stand will depend on closer understanding of the full judgment. We are looking at three parameters, namely price, tenure, and volume.”

Investment Advisor SP Tulsian, a close follower of this entire legal tussle, said RNRL may want to reduce the tenure when they renegotiate their gas contracts. "RNRL may say that we are not on with our production capacity and may take about three-four years, so we want to have the tenure reduced to maybe 12-13 years. Already one year has passed and the life of the wells is only 17 years, so only 16 years of residual life is left. Hence, they may opt for tenure of 12-13 years." RNRL may even opt voluntarily to reduce the gas allocation from 28 mmscmd to about 20 mmscmd, he added.
Source: Moneycontrol

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