What does HC judgement mean for RIL-RNRL?

The Bombay High Court yesterday gave RIL and RNRL 4 months to renegotiate their dispute. The second part of the judgement came out today.

What do the pronouncements mean to the gains that could have accrued to the two companies – RIL and RNRL?

If one looks at the 106-page order, a few things come to the forefront. The court has made it very clear that the gas  pricing formula for the valuation of the gas needs to be approved by the government and the submissions that were made by RNRL that it is not concerned with the production-sharing contract between the government and Reliance Industries, is absolutely not correct. In fact, the Court has also said that the government also has a say even in the gas price agreed between RIL and RNRL because it is concerned with its share of petroleum profit and royalties; and royalties on natural gas can only be determined upon the sales price.

Now, the important point that the court seems to have made, is that there can be no question of fixing of prices for all time to come, that prices cannot be for a period of, let’s say, for a period of 17 years; and that’s the term for which the RIL-RNRL gas price is supposed to be based. But it cannot be one price for 17 years; that it has to be revised from time-to-time as per the government policy.

And also, the respondent, RIL cannot be directed to supply gas at subsidized rates and to incur losses. The government has fixed the minimum price at $4.20/mmbtu. Government officials have said that RNRL would have to pay a minimum price of at $4.20/mmbtu.

So the court order makes it very clear that pricing is an issue and has to be renegotiated between the two parties. There is a Morgan Stanley report that has come out today, quoting RNRL, which seems to suggest that pricing would not be discussed between the two (RIL-RNRL, when they’ll renegotiate the contract. However, that seems very unlikely, going through the High Court order.