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The Supreme Court has delivered the judgment in the RNRL-RIL K-G D6 gas case. The three judges, in two separate judgments over the three appeals of RIL, RNRL and the Centre, have upheld in entirety the government's submissions and interpretation of the production sharing contract (PSC), although RIL and RNRL have been asked to renegotiate the terms of the Gas Sale Master Agreement (GSMA). It is settled beyond doubt that the government is the owner of the natural resources. That the production sharing contract overrides any other private arrangement and that the government's rights to formulate the Gas Utilisation Policy and fix the pricing formula are absolute. The government's purpose in filing the SLP with SC has been fully served and its stand vindicated.Why should the government become a party in the case which is a private dispute between two corporates, was being repeatedly raised. Now that the judgement has been delivered, the appropriateness and necessity of the government joining the case has become crystal clear.The June 2005 Bombay High Court judgment giving effect to the family MOU in the wake of demerger of the two brothers' assets directed that within a period of 30 days, RIL and RNRL should sign an agreement to supply 28 mmscmd of gas to RNRL for a period of 17 years at a price of $ 2.34 per mmBtu. The Court also gave other options in case the agreement does not happen, including either party approaching the court for modification of the MoU terms. The first option which, for the first time, gave legal effect to the MOU, had significant revenue implications for the government and profoundly sinister implications for development of gas-based industries in the country and for the national economy. And, the conclusions of the High Court were based on erroneous interpretations of the PSC and the technical terminologies such as cost gas and profit gas.What would have happened if the MoU was valid and enforceable? The MOU provided that RIL will supply 12 mmscmd of gas to NTPC and 28 to RNRL at a price of $2.34 per mmBtu and the balance of gas from the K-G D6 field and from all other fields being operated and to be operated in future by RIL will be shared between RIL and RNRL in the ratio 60:40. The gas from K-G D6 field alone is substantial and is expected to double the domestic availability of gas shortly. So, enforcement of the MOU would have meant a small quantity (12 mmscmd) to NTPC but the rest to the two corporates for their power and petrochemical industries and for sale to others at their sweet will and discretion. In a situation of gas shortage, gas-based industries, particularly in critical sectors of power and fertilisers, would have remained at the mercy of the two big gas owners.If this MOU was valid superseding the PSC, similar MOUs would have come up in the wake of similar discoveries and production by others. So, the wanton freedom to the contractors contrary to public law and the principle of sovereign ownership of natural resources would have subverted the national interest completely. Under such circumstances, the decision to file a separate SLP was taken. Yes, the stakes for the two parties were high but the stake for the government and the country were much higher. RIL's additional profit at $4.2 per mmBtu would have been about Rs. 7,000 crore for the duration of the K-G D6 project. But the government's revenue loss for the same supply would have been about Rs 30,000 crore in terms of royalty, profit petroleum and taxes.Justice Sudershan Reddy, has observed that "leave was granted to GoI to join the case in view of the fact that the PSC, to which the Union of India is a party, has been interpreted without the GOI having had an opportunity to be properly impleaded and present its case and the potentially serious implications that arise there from." It has also been observed that: "Though late, with the entry of Union of India as a full fledged party to the case, the issue of public interest and welfare has also come to be crystallised." It is a matter of tremendous satisfaction that the ministry, undeterred by a plethora of criticisms, mud-slinging and intimidations, pursued the national interest with intrepidity and determination.One of the allegations against the ministry is that some replies given in Parliament by ministers in charge of petroleum ministry were contrary to the government stand taken in the court. Justice Sudershan Reddy has observed in this regard: "the short answer to that, in the context of the case is: it does not matter." In fact, answers were given in Parliament in the context of the questions at that point of time.Another allegation pursued in the Court was that GoI had remained silent for a long time even though it knew about the commitments of RIL through the MoU and with NTPC and that the government is joining the dispute with a view to help RIL after it has lost in the Bombay High Court. The government's answer to this allegation has been that the government has gone to the appropriate court whenever there is a direction harming the government's and the national interests. The government did intervene in the Bombay high court when there was an injunction against sale and production of gas. Again, the government appealed in the Supreme court against the judgement of the High Court. Justice Sudershan Reddy has observed in this regard: "It is not uncommon for government agents to remain silent, even though the instruments under which private parties get rights to exploit natural resources provide otherwise and impose restrictions that are being flouted. This happens many a times, and for obvious reasons. That cannot become the basis for evisceration of policy making rights of the GoI."Will the verdict hit investment?Not really. It is true that the government has the powers to approve the gas pricing formula. But the PSC, which the SC has upheld, provides for guidelines to govern such approval. The price has to be on arms-length basis, to the benefit of the contractor as well as of the government, and will take into account the prevailing policy, if any, on pricing of natural gas including any linkages with traded liquid fuels. Arms-length basis is another name for market basis. The powers to the government have been provided for only because of the absence of a well-development gas market in India as in many other parts of the world in which situation the contractor may indulge in rent-seeking behaviour in a seller's market. As regards the dispute between the two parties, there is still a window of opportunity by way of renegotiation. They would hopefully settle their mutual differences, although the negotiation has to be consistent with the government policies.The future agendaAs per the verdict, that it is high time the government frames a comprehensive policy/suitable legislation with regard to energy security and supply of natural gas under PSCs. This is important given the parlous situation in terms of energy security, particularly in the context of India seeking to become a super power. India is expected to import 92% of its oil and gas requirements by 2030 for its consumption needs alone excluding the export needs, unless comprehensive policy reforms covering the aspects of supply as well as demand are introduced forthwith.—During RS Pandey's stint, the Centre filed the SLP in the SC against the Bombay HC verdict that gave legal effect to the family MoU between the Ambani brothers
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