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RIL, NTPC to sign new gas deal despite legal dispute

New Delhi, June 27, 2009

Reliance Industries Ltd (RIL) is likely to sign a gas sales and purchase agreement (GSPA) with state-owned power major NTPC to supply gas at the government-mandated price of $4.2 per million metric British thermal unit (mmBtu).

RIL will supply 2.67 million metric standard cubic metres per day (mmscmd) of gas from its Krishna-Godavari (K-G) basin for NTPC’s plants at Anta, Dadri and Faridabad in Uttar Pradesh.

The significance of this agreement is that it has been signed despite a continuing case in the Bombay High Court between RIL and NTPC for supply of 12 mmscmd gas to the power major’s Kawas and Gandhar plants in Gujarat for 17 years at a price of $2.34.

This supply was to start in 2007 but a dispute arose over a clause on the liability of either of the two companies in the event of a failure to supply or receive gas. RIL wanted the liability to be limited if it had to make up for any supply gap by paying NTPC a price difference for alternative fuel.

An NTPC official said the power company had initially been reluctant to sign the new agreement since it could have weakened its case for Kawas and Gandhar.

NTPC Chairman R S Sharma had earlier said, "We are willing to sign the GSPA at $4.2, but not for the Kawas and Gandhar expansion projects." NTPC has a current gas-based installed capacity of around 4,000 Mw.

Today, however, RIL Senior Vice-President (commercial) B Ganguly wrote a letter to NTPC Executive Director (fuel management) T K Chatterjee, saying the company is “ready and willing to sign GSPAs as per the contractual priorities indicated by the Ministry of Petroleum and Natural Gas for Anta, Dadri and Faridabad plants”.

Mukesh Ambani-controlled RIL was also involved in a similar case against Anil Ambani-controlled Reliance Natural Resources Ltd (RNRL) over gas pricing. Earlier this month, the Bombay High Court told RIL to supply gas to RNRL at $2.34 instead of $4.2 per mmBtu pending a settlement between the brothers.

RIL has already signed five-year GSPAs with nine other power suppliers to supply 11 mmscmd natural gas.

Following the agreement with NTPC, the quantity of gas supply to the power sector from the K-G basin will go up to 13.67 mmscmd. The company expects to supply 18 mmscmd of gas to the power sector and it plans to sign more agreements.

K-G basin, which began commercial production in April, currently produces 27 mmscmd of gas, and this is likely to be ramped up to 40 mmscmd by July. Apart from power companies, RIL is also supplying gas to fertiliser companies in accordance with the government’s gas utilisation policy.

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