Sunday, July 05, 2009

Update on RNRL & RELIANCE Gas dispute moves to Supreme Court
RNRL Moves Supreme Court Over Gas Dispute
MUMBAI (Dow Jones)--RNRL, Friday filed an appeal in India's highest court in its gas dispute with former group company Reliance Industries Ltd. "We have approached the Supreme Court against the last part of the Bombay High Court order wherein it has asked us to negotiate (with Reliance Industries)," RNRL's counsel Mukul Rohatgi told reporters. He said the court shouldn't have asked RNRL to negotiate with RIL after specifying the price, the quantity and the tenure of gas supply. The High Court June 15 directed RIL, to sell gas from its offshore D6 block in the Krishna-Godavari basin off eastern India to RNRL at $2.34 a million British thermal unit, 44% less than the government-recommended price of $4.20/mbtu. The court had upheld an earlier agreement signed by Mukesh Ambani and his estranged younger brother Anil Ambani, who controls RNRL, as part of a division of the family-run businesses in 2005.
The court had also ordered both the companies to reach a final agreement on the modalities of the gas supply. "The appeal has been forced due to Reliance Industries' obstructionist attitude toward a settlement," Rohatgi said. "The government's revenue will not be affected and we don't want the government to lose even a single pie." RNRL has been seeking 28 million metric standard cubic meters a day, or MMSCMD, of gas from RIL for 17 years for projects of group companies including Reliance Power, citing a family MOU based on which the Reliance group was divided. "We want the gas immediately," Rohatgi said, declining to elaborate. He also said that the gas supply obligation was a result of corporate restructuring of RIL and its not a private arrangement and protects the interest of over 25 lakh share holders.  When asked about the usage of the gas since none of Anil Ambani Group's power projects are currently operational, he said: "We will decide once we get the gas." RNRL still doesn't have a single gas-based plant and unlikely to come up with one over next 2 years and as they are not allowed to trade in gas, it is still uncertain as to what they will do with this gas. RNRL's plea for gas at $2.34/mbtu was based on a tender of NTPC Ltd, in which RIL had agreed to sell gas to the state-run company's power projects at that price. In 2007, however, a group of ministers set the price at which RIL could sell gas to RNRL at $4.20/mbtu. RIL began gas production from its Krishna-Godavari basin April 2. It has also signed gas supply agreements with several fertilizer and power companies to supply about 26 MMSCMD of gas from the D6 block. RIL is embroiled in a separate court case with NTPC over the tender to supply up to 12 MMSCMD of gas at $2.34/mbtu

Reliance Industries (RIL) has made the government a party in its petition before the apex court challenging the Bombay High Court verdict on the gas supply dispute with Anil Ambani group company Reliance Natural Resources (RNRL).

What should an investor do?
RNRL still doesn't have any business to do as they don't have any plant, except for some office space in Mumbai, they don't have an asset base itself to boast of. What they are trying to do is to be a party buying gas from RIL and selling it to RPOWER, earning commission in-between. But now as it has moved SC regarding this matter, the decision is going to take more time as once again hearings will start. As it doesn't have a growing business model yet, I feel one should not touch RNRL for investment buying, how can one ascertain the value of the stock if it doesn't have a business itself? About RIL, it has run up very well since it had been recommended in October around Rs 1100 and now the good news looks priced in for the time-being. Wait for clarity on this matter and don't hurry expecting favourable decision for RIL or even RNRL. They say, one going to court and winning is still a beggar and the loser is a dead man!

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