‘MoU will be the guiding factor for re-negotiation’ | business | Hindustan Times
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‘MoU will be the guiding factor for re-negotiation’

business Updated: May 09, 2010 23:06 IST
Anupama Airy
Anupama Airy
Hindustan Times
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As Mukesh and Anil Ambani prepare themselves for re-negotiations on the contentious gas supply pact after the Supreme Court verdict, Hindustan Times spoke to Reliance Power Ltd (RPL) CEO J.P. Chalasani:

What is there to re-negotiate?
The re-negotiations will be on the gas sales and purchase agreement and the master gas agreement entered into between Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd (RNRL) as part of the de-merger scheme of 2005 (dividing the businesses of the undivided Reliance Industries between Mukesh and Anil).
This has to be done keeping in view the family Memorandum of Understanding (MoU), which even though is legally not maintainable, has to be taken into account by the parties. So the MoU will be guiding factor for re-negotiations between the two sides.

But you have already lost on the price issue, as your demand was $2.34 (Rs 107) per unit…
It is quite clear that it is neither us nor RIL will dictate gas pricing. The court has held that the government is the ultimate authority to fix the price. The price of $4.20 (Rs 191) for the KG-D6 gas has been fixed by the government only for five years. If power has been identified as priority sector for gas allocation, and if has to be made affordable at the end of the day, there would be some mechanism of pricing with the government. What would evolve is yet to be seen.

Whether $2.34 or $4.20 or even higher, the price of fuel is a pass through to consumers, who pay this price. So what was your fight all about — consumer interest, or margins?
While fixing the price of gas for the power sector, the government will automatically ensure that power at that price is affordable for consumers. We have clarified in our affidavit to the court that we do not want to trade in gas. We also said that if the price is $2.34, the power tariff will be the lowest. We had all through maintained that depending upon the input price of the gas, the tariff will determined.

Volumes of gas currently being produced by RIL are already allocated by the government for the next five years. From where will you get your share of gas?
As per the Directorate General of Hydrocarbons, RIL’s capacity to produce gas is ultimately 120 mmscmd. The entire infrastructure built by RIL is for 120 mmscmd. Today it can produce 80 mmscmd but is producing only 60 mmscmd. This is coming from a small acreage of the total area, there is more gas coming from RIL and other companies like ONGC. So there is adequate gas available and we need not worry any more.

What gas-based power plants have you planned other than Dadri in Uttar Pradesh?
We have planned 10,000 mw of gas based power generation (which includes Dadri) out of the 35,000 mw total power capacity till 2017. We already have access to 2 billion tonnes of coal reserves and so all our coal-based capacity to come on environment friendly supercritical technology is on track, besides hydel power planned.

Is the Dadri gas-based power project still on?
Dadri is very much on. And it needs to be clarified that our gas supplies from RIL are not just restricted to Dadri. Under the MoU, the gas is meant for all gas power projects by the group. Dadri is just one location and we also have other locations for setting up gas-based power plants where we have all the preparatory work done. Once we get gas we can produce power at any of these locations.

The RNRL stock has crashed. What should shareholders do?
There is nothing for them to worry about, their interests already stand protected. The court has very clearly said the re-negotiations have to be done on the gas sales agreement with RNRL, keeping RNRL shareholders’ interests in mind. RNRL also has other interests like the coal bed methane projects, the oil and gas blocks and coal blocks besides some shipping business in future.