The Bombay High Court has given decision is in favour of RNRL which will now get nearly 28 mmscmd of gas for 17 years at a price as determined in the original Memorandum of Understanding (MoU) signed during the Reliance de-merger. The MoU very clearly stated that the price which will be given to NTPC will be the same price at which RNRL will be getting gas. At present the price would be around USD 2.34 per mmbtu. 

Going back to the Empowered Group of Ministers’ (EGoM) decision, the EGoM came out with a pricing of USD 4.2 per mmbtu might not hold. If the High Court is saying that it should be at USD 2.34 or at the MoU price then RIL would have to sell the gas USD 2.34 per mmbtu to RNRL. 

If we look at the marketing margins point, as of now the marketing margin is fixed at 13.5 cents per mmbtu. That means that the additional cost would be of transportation.The latest Global Gas price is much above the USD 6 mark. So it is going to be a steep discount to the current market price in any case so reliance would be in big loss along with Indian government clearly.

The big question is what the government will do because the gas belongs to the government and Reliance is only an operator of the field. If we look at it from that perspective, the government is going to lose the money. The production sharing contract very clearly says that whatever RIL is going to invest into the KG Basin, it will get returns on that. So, it basically means that if the price of gas comes down to USD 2.34 per mmbtu the government’s share or profit will come much later and not much earlier. It basically means that.

So, for an extended period of time, RIL will recover the capital cost that it has incurred on the KG D6 Basin and only then will the government profits come in.