UPDATE 1-Reliance Ind buying costly gas for refinery-lawyer

Thu Oct 22, 2009 10:22am EDT

Related Topics

* RIL imports liquefied natural gas at $9 per mmBtu

* Cheaper gas possible if govt permits marketing freedom

* India court to resume gas-dispute hearing on Tuesday

By Pratish Narayanan

NEW DELHI, Oct 22 (Reuters) - Indian energy major Reliance Industries (RELI.BO) is paying more to import liquefied natural gas to power its refinery in western India than if it were allowed to receive gas from its own field, a lawyer for the firm said on Thursday.

Mukesh Ambani-controlled Reliance Industries, India's top conglomerate, and Reliance Natural Resources (RENR.BO), led by younger brother Anil Ambani, are fighting a legal battle over terms of a deal to sell natural gas to Reliance Natural at below the price set by the government.

The deal, part of a private family settlement brokered by their mother, split the Reliance empire between the brothers in 2005 following the death of their father.

The disputed gas comes from the vast Krishna Godavari basin, off India's east coast, that is operated by Reliance Industries. The field is the country's biggest gas find and is expected to nearly double India's gas output when production peaks to 80 million standard cubic metres a day (mmscmd).

But Reliance Industries is not allowed to buy its own gas by the government, which decides who will buy the gas and at what price.

Reliance Industries, which owns the world's largest oil refining complex, imports LNG at about $9 per million metric British thermal unit (mmBtu) to power its refinery at Jamnagar, in the western state of Gujarat, company lawyer Harish Salve told India's top court.

Media reports citing company's executive director P.M.S. Prasad have said the price of gas from Reliance's field in the KG basin could cost about $6.25 per mmBtu.

"If we had more marketing freedom, we would get the gas cheaper," Salve told a three-member court bench including Chief Justice K.G. Balakrishnan.

Last December, Reliance commissioned a new 580,000 barrels per day (bpd) refinery next to its older 660,00 bpd plant at Jamnagar.

HEARING TO RESUME TUESDAY

Reliance Industries commenced its initial arguments in the high-profile dispute on Tuesday, saying a private agreement signed between the Ambani brothers is not binding on the company and it can sell gas only at the price set by the government.

Anil Ambani's Reliance Natural Resources claims the contract is valid and wants the court to direct Reliance Industries to supply it with 28 mmscmd of gas for 17 years at almost half the government-set price of $4.2 per mmBtu.

India's 51-year-old sandstone Supreme Court will resume hearing the case next Tuesday, with Reliance Industries expected to conclude its initial arguments by Thursday.

The court will then hear arguments by Reliance Natural, following which it will consider a petition by the government to become a party to the dispute.

The government had filed an application asserting it is the rightful owner of the disputed gas, sparking debate on its role in gas pricing and marketing and investor uncertainty in a politically sensitive resource.

Analysts say the government would be under pressure to adhere to the Supreme Court's verdict on the case, which could determine future policy on gas pricing and marketing.

For a related Q&A, see [ID:nBOM489932]

For a related timeline, see [ID:nBOM492601] (Editing by Malini Menon)

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