Ambanis' new gas supply pact to expire in 2022

Ambanis' new gas supply pact to expire in 2022

While the gas would be given by Mukesh Ambani-led RIL to the Anil Ambani group firm at the government specified price, the duration of the gas supply will be decided in the Gas Sales & Pucrhase Agreement as and when the two sides sign it.

The fuel supply, under such an agreement, could stretch beyond 2022 -- depending on availability and allocation by the government. 2022 is the year when the revised non-compete agreement between the two Ambani brothers that bars Mukesh from taking up gas-fired power projects ends.

Reliance Natural Resources Ltd and RIL on June 25 signed a new Gas Sales Master Agreement (GSMA), which replaced a similar contract of January 2006, outlining the Mukesh-run firm's intent of supplying gas to ADAG power plants on terms set by the government, industry sources said. The GSMA does not mention of any volumes that RIL will supply to the ADAG firm or specific power plants which will receive it and only states that gas will be supplied to power plants that are sanctioned by the government for receiving gas.

The new supply agreement was entered into after the Supreme Court on May 7 rejected RNRL's case for gas at rates lower than government approved price. The court had asked RIL and RNRL to enter into a suitable agreement bearing in mind the government's right to approve price and users.

Sources said the price of gas in the GSMA is stated to be according to the pricing formula that the government had approved in 2007. According to this formula, RIL is selling gas from its eastern offshore KG-D6 fields at USD 4.2 per million British thermal unit at USD 60 dollars per barrel till March 2014. The rates may change in 2014 if the crude benchmark in the formula is changed in line with the international oil trend at that time.

Sources said unlike the January 2006 GSMA that provided for RIL supplying 28 million standard cubic meters per day of gas to ADAG plants like the mega 7,800 MW Dadri unit near here at a fixed price of USD 2.34 per mmBtu for 17 years, the new supply pact does not mention either volumes or duration.

Once, the government approves of allocation to a ADAG power plant, RIL will enter into a specific Gas Sale and Purchase Agreement (GSPA) for supplying gas to the unit.

"This Agreement (GSMA) shall be effective upon its execution and shall terminate on March 31, 2022. Provided, however, the GSPAs entered into pursuant to this 2010 Gas Master Supply Agreement shall remain in force and effect in accordance with their respective terms," a source said, quoting from the renegotiated GSMA.

So, if the government was to allocate gas for a tenure longer than the validity of GSMA, RIL will enter into GSPAs for the said duration and supply gas to ADAG plants accordingly. Also, RIL is to supply gas to RNRL and its affiliates. Affiliates are defined as Reliance Infrastructure Ltd and its subsidiaries and Reliance Patalganga Power Ltd and its subsidiaries.

Subsequent to signing of the GSMA, RNRL is being merged with another Anil Ambani Group firm Reliance Power. R-Power, which plans to set up the Dadri plant, besides new units in Gujarat, Maharasthra and Andhra Pradesh, will inherit the GSMA.

In the new GSMA, RNRL has not only agreed to pay the price approved by the government but also a marketing margin of USD 0.135 per million British thermal unit (mmBtu).
RNRL had last year refused to pay marketing margin to RIL terming them as "illegal". It subsequently paid the amount, charged by RIL for its marketing effort, "under protest."
In the GSMA, the two firms have agreed that level of production of gas from the block would be subject to the Development Plan approved by the government. Also, RNRL has agreed to not trade the gas it gets from RIL and the usage being restricted to the plants to which it is allocated.

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