Gujarat Gas settles out of court with customer

Vol 13, PW 17 (11 Feb 10) Midstream & Downstream

Prolonged legal battles are a headache and to its credit, Gujarat Gas has realised this! In a little reported development, PETROWATCH learns the BG subsidiary amicably concluded an acrimonious year-long Delhi High Court battle over the price of gas supplied to chemical producer Gujarat Fluorochemicals.

Both parties agreed an out of court settlement on December 17 after nearly six months of talks. Under the settlement, Gujarat Gas agreed to a price of $10/mmbtu set by a Delhi High Court interim order for gas supplies delivered to Gujarat Fluorochemicals between April 1, 2008 and December 31, 2008.

“This is the final, agreed price,â€‌ confirms a Delhi High Court source. Anger first surfaced when Gujarat Fluorochemicals accused Gujarat Gas of illegally terminating a Gas Supply Agreement (GSA) signed in 2006 and invoicing the chemical manufacturer $24.62/mmbtu for supplies after April 1, 2008 - earlier Gujarat Fluorochemicals waspaying just $4.62/mmbtu plus taxes, the original rate set in the GSA.

Under the GSA signed on March 14, 2006, Gujarat Gas committed to supply 1.7m cm/d to two Gujarat Fluorochemicals factories, at Ranjitnagar near Vadodara and Dahej until March 31, 2011. A “price resetâ€‌ clause in the GSA allowed both parties to renegotiate the gas price for supplies after April 1, 2008, but Gujarat Fluorochemicals alleges Gujarat Gas arbitrarily began issuing invoices at $24.62/mmbtu before scrapping the contract.

Gujarat Gas, we learn, has also agreed not to encash a Rs60cr ($12.8m) bank guarantee deposited by Gujarat Fluorochemicals with the court.Gujarat Fluorochemicals, meanwhile, says it is "adjusting its accounts" to accommodate the new settlement.

Gas drawn by Gujarat Fluorochemicals after April 1, 2008 had earlier been accounted for at $4.62/mmbtu plus taxes. Now the difference owed to Gujarat Gas, which comes to Rs28.86cr ($6.1m) will be accounted as power and fuel expenses for the third quarter of calendar year 2009.