Reliance and NTPC in court 3 days before Jain retires

Vol 9, PW 24 (23 Mar 06) People & Policy

Reliance and NTPC enter the next round of their battle over gas supplies from the D6 block in the Krishna Godavari basin with a hearing at the Mumbai High Court on 28th March just three days before the scheduled retirement of outgoing NTPC chairman CP Jain.

At issue is the Letter of Intent (LoI) awarded to Reliance by NTPC in July 2004 for the supply of 12m cm/d from D6 to its Kawas and Gandhar power plants. After months of haggling over a gas supply agreement, NTPC lost patience with Reliances foot-dragging and in December 2005 filed a case in the Mumbai High Court alleging breach of the LoI terms.

Central to NTPCs argument is that Reliance should agree unlimited liability if it defaults on gas supply from the block, a condition clearly flagged in the tender terms, prompting the likes of British Gas, RasGas and Shell to beat a hasty retreat from the tender. Today, Reliance opposes this unlimited liability condition and is only prepared to cap its liability to $250m.

Still, Reliance believes NTPC has a weak case. There is no concluded gas sales contract between Reliance and NTPC, says an industry source.

The court has no jurisdiction in the matter. Only the tender document counts, believes Reliance, because no contract is in place between the two sides.

According to the tender document seen by this report - acceptance by Reliance of the LoI makes it only a preferred bidder not the selected bidder. If NTPC was unhappy with Reliance, goes the argument, it should have made this clear within 30 days, in line with its own tender terms, and begun talks with the second lowest bidder: Petronas something it didnt do.

Due to any reasons whatsoever, NTPC at its sole discretion may enter into negotiations with the evaluated second lowest bidder or bidding consortium, says the tender terms. In such an event the bid security of the preferred bidder (Reliance) shall be encashed.

Given these clear terms, we are told, no court will attempt to create a contract between NTPC and Reliance.

LNG Summit