19 Jun 07, 22:43
Sreenadh: Sir, what's the brouhaha over natural gas pricing?and dispute between Reliance Bros
Reliance Industries Limited has discovered lot of natural gas off the East Coast in
The deal between the brothers envisaged this share to be given at a price of $2.34 mmBtu (Million Metric British Thermal Units). But the Government of India, being the owner of the natural resource, would be interested in getting higher profit petroleum. So it naturally wants a better price than the agreed price of $2.34 between the brothers for the quantity of gas being exchanged. But discovering market determined price of a commodity like natural gas, that too in a country like India (with is current development of natural gas markets being very nascent) is not going to be easy. There will be claims and counter-claims. So at the behest of the Government of India, Mukesh Ambani got down to the business of discovering the market price through an open bid process. The price that was discovered through this method was found to be $4.33 per mmBtu. The government seemed to have developed cold feet even with this price. So it constituted an EGoM to look into the issue. This EGoM came out with a price of $4.20 per mmBtu based on a number of factors. This is the minimum price at which the natural produced at this KG basin discovery is to be traded. Even if the actual price turns out to be lower than this, Mukesh Ambani will have to pay the Government of India profit petroleum calculated at this rate.
In complex business transactions like this, it is very difficult for any stakeholder to understand the true import of every step of the transaction. At a given point of time, one will appear to be losing while another will appear to be gaining. A certain amount of give and take is inevitable. Now the younger brother has approached the Bombay High Court contesting the development plans of the elder brother. The Bombay High Court has asked the brothers to renegotiate the deal as it has run counter to the family settlement.Updated on 16.10.2007.