May 11 (Bloomberg) -- Reliance Power Ltd., controlled by billionaire Anil Ambani, will renegotiate commercial terms to buy gas from Reliance Industries Ltd., which won backing from India’s top court to sell the fuel at state-set prices.
“There are 40 to 50 commercial issues,” Jayarama Chalasani, chief executive officer, said in a telephone interview yesterday, without elaborating. “Now there is clarity on how each issue needs to be resolved in line with the Supreme Court judgment.”
India’s Supreme Court said May 7 Reliance Industries, controlled by Mukesh Ambani, Asia’s richest man, should negotiate gas sales afresh with brother Anil’s Reliance Natural Resources Ltd., which sought to buy the fuel at a discount to a state-set price in accordance with a family agreement.
“This particular negotiation will obviously be highly difficult,” said Abhineet Anand, a Mumbai-based analyst with Antique Stock Broking Ltd. “The key will be the volume of gas. Lower amounts could be a big negative.”
Reliance Natural procures fuel for the Anil Ambani group, which is building 35,000 megawatts of power generating capacity. Of that, 10,000 megawatts is gas-based including a planned plant at Dadri in north India.
Gas from the Reliance Industries-operated KG-D6 field, India’s biggest, is not restricted to the plant at Dadri, about 50 kilometers (31 miles) east of New Delhi, Chalasani said. Projects other than the 7,480 megawatt Dadri plant can use the gas, he said, without being more specific.
“As soon as the gas is made available, we can start construction” of plants, Chalasani said. “Irrespective of whether Dadri is available or not, we can start using the gas in 24 to 36 months.”
Dadri Finances
Reliance Power shares gained 6.1 percent in Mumbai yesterday, rising for the first day in seven. Reliance Natural declined 4.8 percent and Reliance Industries rose 5.2 percent compared with a 3.4 percent increase in the benchmark Sensitive Index.
An agreement with Reliance Industries on supply of gas will help Reliance Power raise finances for the Dadri plant, Chalasani said.
Reliance Industries should start renegotiations with Reliance Natural within six weeks, according to the Supreme Court’s judgment. A revised agreement should be submitted to the company court within eight weeks of the talks starting, the court said.
The government’s gas utilization policy and national interests can’t be violated during the renegotiations and the family agreement, though not legally binding, should be taken into account, the court ruled.
Gas Allocation
The Ambani brothers will renegotiate volumes and tenure of gas to be supplied to Reliance Natural, Alok Deshpande, an analyst with Elara Capital Ltd., said in a report yesterday. Anil Ambani said he had an agreement with Mukesh to buy 28 million cubic meters a day of gas at $2.34 per million British thermal units for 17 years.
The Indian government fixed the price of gas to be sold from the KG-D6 field in September 2007 at $4.2 per million British thermal units for five years. The government has allocated the field’s current output of around 63 million cubic meters a day to priority customers, including power stations and fertilizer plants.
“The higher gas price will raise electricity prices,” Chalasani said. “For us, it is a pass-through.” He didn’t say how much electricity prices would rise.
India plans to add 78,000 megawatts of power generating capacity in the five years ending March 2012 and 100,000 megawatts in the next five years to reduce blackouts in Asia’s third-biggest energy consumer.
The court’s verdict will not affect Reliance Power’s plans to add 25,000 megawatts of generation capacity using coal and water, Chalasani said.
