NTPC suit against RIL coming up for

hearing today.
NTPC

Mumbai: Long pending NTPC’s suit against Reliance

Industries Ltd (RIL) will once again come up for hearing on
Monday at the Bombay High Court. At stake in the dispute is a
ruling on whether NTPC can bind RIL to a specific
performance of supply of contracted quantum of gas
mentioned in the letter of intent (LoI) signed by both the
parties signed for sale by RIL of natural gas from its gas/oil
field in the Krishna-Godavari basin, say sources familiar with the legal dispute.
NTPC eyes inland waterway to transport imported coal
NTPC has appealed to the court that RIL should fulfil its contractual obligation of supplying 12
million standard cubic meter a day (mscmd) of natural gas.
RIL in its earlier arguments had stated that the unlimited liability clause in the gas sale and
purchase agreement (GSPA) with NTPC was not acceptable. Therefore, it cannot execute the
contract.
NTPC planning to scale up capacity
The Advocate-General of Maharashtra, Ravi Kadam, representing NTPC, had pleaded that if
there was no unlimited liability and if RIL did not comply with the GSPA in the future, then
NTPC would be left high and dry. Given the quantity of gas NTPC needs for its projects, it
cannot be sourced from any other company, he had said in the court.
More India business stories
In 2003, NTPC had floated a global tender for supply of gas to its power projects in Gujarat. The
GSPA was annexed with the tender document. RIL, succeeded in its bid to sell, transport and
deliver supply of 12 mscmd of gas for 17 years at $2.34/mbtu - one million British thermal units.
NTPC had awarded the letter of intent (LoI) to RIL in 2005.
Industry sources said that, LoI was signed by both the parties. But the contract, which usually
follows LoI was not signed by RIL in a stipulated timeframe. It is a standard practice in NTPC
that once a contractor qualifies for a tender, it is asked to sign the LoI and a contract follows.
In contracts where NTPC is not confident about the contactors ability to full fill the contractual
obligations or if there is uncertainty in the tender and contract, the LoI and the contract are
signed on the same day by both the parties. In RIL case, this practice was not followed, sources
said.
NTPC is likely to seek ‘specific performance of contract’ under the contract act to implement the
pending contract. It will not seek ‘liquidated damages’ from RIL, industry sources said.
More India business stories
The provision of liquidity damages was inbuilt in the tender process, whereby, the NTPC could
impose damages up to a maximum of 10 per cent of the contract value. The clause has an
inherent advantage in situations of non-supply where the market price for natural gas is
substantially higher than the contracted price.
Get Latest Quote and Company Info
NTPC suit against RIL coming up for hearing today
Rahul Wadke
Mumbai, Oct 5
Long pending NTPC’s suit against Reliance Industries Ltd (RIL) will once again come up for
hearing on Monday at the Bombay High Court. At stake in the dispute is a ruling on whether
NTPC can bind RIL to a specific performance of supply of contracted quantum of gas mentioned
in the letter of intent (LoI) signed by both the parties signed for sale by RIL of natural gas from
its gas/oil field in the Krishna-Godavari basin, say sources familiar with the legal dispute.
NTPC has appealed to the court that RIL should fulfil its contractual obligation of supplying 12
million standard cubic meter a day (mscmd) of natural gas.
RIL in its earlier arguments had stated that the unlimited liability clause in the gas sale and
purchase agreement (GSPA) with NTPC was not acceptable. Therefore, it cannot execute the
contract.
The Advocate-General of Maharashtra, Mr Ravi Kadam, representing NTPC, had pleaded that if
there was no unlimited liability and if RIL did not comply with the GSPA in the future, then
NTPC would be left high and dry. Given the quantity of gas NTPC needs for its projects, it
cannot be sourced from any other company, he had said in the court.
In 2003, NTPC had floated a global tender for supply of gas to its power projects in Gujarat. The
GSPA was annexed with the tender document. RIL, succeeded in its bid to sell, transport and
deliver supply of 12 mscmd of gas for 17 years at $2.34/mbtu - one million British thermal units.
NTPC had awarded the letter of intent (LoI) to RIL in 2005.
Industry sources said that, LoI was signed by both the parties. But the contract, which usually
follows LoI was not signed by RIL in a stipulated timeframe. It is a standard practice in NTPC
that once a contractor qualifies for a tender, it is asked to sign the LoI and a contract follows.
In contracts where NTPC is not confident about the contactors ability to full fill the contractual
obligations or if there is uncertainty in the tender and contract, the LoI and the contract are
signed on the same day by both the parties. In RIL case, this practice was not followed, sources
said.
NTPC is likely to seek ‘specific performance of contract’ under the contract act to implement the
pending contract. It will not seek ‘liquidated damages’ from RIL, industry sources said.
The provision of liquidity damages was inbuilt in the tender process, whereby, the NTPC could
impose damages up to a maximum of 10 per cent of the contract value. The clause has an
inherent advantage in situations of non-supply where the market price for natural gas is
substantially higher than the contracted price

NTPC slams RIL in gas dispute

Email
Sreejiraj Eluvangal / DNA
Thursday, September 10, 2009 23:51 IST
Print

Share
Mumbai: The National Thermal Power Corp, which had been silent in the face of accusations by Reliance Industries
(RIL) in the past month, finally opened up on Thursday.Issuing a 'corporate disclosure', NTPC rubbished RIL's charge that
it was forcing consumers in Gujarat to pay more by refusing to buy its gas.

On the contrary, NTPC said, buying RIL's gas at $4.2 instead of the $2.34 that was initially offered will cost power
consumers an extra Rs 32,000 crore over the next 17 years.

In a series of letters, over the past month, RIL has said NTPC's decision to buy LNG abroad will raise power tariff in
Gujarat.

RIL's head of petroleum business, P M S Prasad said NTPC was buying spot gas for as high as $11.2 against a delivered
price of $6.7 offered by RIL.

This increased the cost of power by Rs 1,500 crore per year, Prasad said.

In its 'corporate disclosure' NTPC defended its decision to buy more expensive gas from the spot market till its dispute
with RIL is sorted out. It pointed out that buying gas at $4.2 from RIL, though profitable in the short-term, will impact its
legal standing in its fight with RIL to get gas at $2.34. It also pointed out that, unlike the RIL contract, it could stop
purchasing spot gas as soon as the Bombay High Court delivers its verdict.

Moreover, it pointed out, unlike RIL's terms and conditions, spot gas buys did not involve any 'take or pay' obligation and
therefore did not require NTPC to pay even if it did not use the gas.

"NTPC is a customer-focused power utility and it very well understands the impact of fuel price in the overall cost of
electricity and always makes efforts to source fuel at competitive price... NTPC has already been procuring spot RLNG at
competitive rates from market through tenders and without any take or pay liability. Since there is no take or pay liability
clause, generation of power from spot RLNG is done as per the schedule given by the beneficiaries [state electricity
board]," it pointed out.

The 'corporate disclosure' also answered RIL's question as to why NTPC was insisting on a lower price when it can easily
pass on its fuel price to the consumers. "NTPC is a long-term player in the field of power sector and works on corporate
ethics. For NTPC, fuel pass-through means protection of long-term interest of its customers by sourcing of fuel at the most
competitive price and NTPC always strives hard for keeping the fuel price at the lowest possible," it pointed out.

Morever, NTPC said, buying gas at $4.2 instead of the $2.34 promised by RIL in a tender process in 2004 would cost
power consumers an extra Rs 32,000 crore.

"The delivered price of gas considering the commodity price of $2.34/mmBtu works out to $3.30/mmBtu... The delivered
price [at $4.2] will work out to be $6.67/mmBtu. The variable cost of power considering $3.30/ mmBtu is Rs 1.07 per unit
and with $6.67 /mmBtu it works out to be Rs 2.17 per unit.

The expansion project of 2600 MW at Kawas & Gandhar will generate 19.36 billion units of electricity in a year. The total
savings in a year for purchase of this electricity by distribution companies and state electricity boards will be around Rs
2,130 crores per year. For 17 years, it works out to be around Rs. 32,000 crores and will directly benefit the consumers," it
argued.

NTPC also countered RIL's argument that NTPC was demanding very steep compensation from RIL if it failed to supply
gas, according to the tender. NTPC pointed out that RIL had agreed to the terms when it submitted its in the international
bidding process in 2004.
"After the bid evaluation process including unconditional acceptance of the GSPA (gas supply agreement), including
liability clause in the event of default of supply of gas, the bid of Reliance Industries was accepted on 16th June 2004 and
Letter of Intent (LOI) was issued to RIL for supply of 132 trillion Btu per annum (12 MMSCMD approx) natural gas at a
price of $ 2.34/ mmBtu... Price bid was submitted by all bidders without any condition. After the placement of LOI and its
acknowledgement by RIL, a contract came into existence with draft of GSPA," it said.

"As NTPC insisted upon RIL for executing the GSPA as per the draft finalised during bidding process, RIL instead of
honouring the contract and executing the GSPA unilaterally modified the GSPA in December, 2005 and signed and
forwarded the same to NTPC for countersigning. These unilateral changes were unacceptable to NTPC and were
unfavourable to customers. NTPC in these circumstances was constrained to file a suit against RIL for specific
performance in the Bombay High Court.," it added.