Should commercial decisions be governed by political considerations? For instance, the issue of supplying natural gas or fixing prices of petroleum items are governed by simple rules of supply and demand. Secondly, seventy percent of the oil is imported from abroad. Therefore it is logical to assume that price will be fixed keeping in mind the dynamic international trends. If the international picture is not kept in mind then it will only result in placing huge burden on government which will have to subsidize the sector as has been the case with kerosene and diesel, which is yet to be fully resolved. It will affect the oil companies in the public sector because of poor regulations. The gas price which is a raw material for producing power also has a relation to the world prices. Without a proper alignment with the global price regime the future projects will become unbankable. In the absence of institutional finance it will not be possible to develop new fields in the future.

The fact remains that the price of no single item can remain static or
stagnant while there is international price volatility. In this age of
globalization big domestic players with large stake in the sector have to respond sensitively to global pulls and pressures both on a short and long term basis. These global pressures adversely affect the pricing of certain commodities. Therefore, the demand for the higher price by RIL from the public sector company after the bid in 2004 for supply of gas at $ 2.97 per MBTU from 2007 for NTPC’s pet projects at Kawas and Gandhar does not seem completely off the mark.

The agreement between RIL and NTPC will be a benchmark to be followed in the future. The rigid stance and the unwillingness to negotiate by NTPC will leave a bad precedent, thereby adversely affecting companies operating in the oil sector. If the RIL and NTPC falls through then there will be long-term future ramifications. RIL is prepared to supply gas at the same prices as first committed in the initial offer. The prices have gone up since then. As per the oil ministry note, RIL had won the tender quoting a delivered price of $ 2.86 mbtu to NTPC. This particular price of gas quoted by RIL was $ 1.23 mbtu was cheaper than the $ 4.41mbtu offered by other players like Petronas and Petronet. Going by the rate offered by RIL , NTPC would have been a beneficiary with at least Rs 12,000 in its kitty. Given the changing scenario, the issue to total liability will have to be slashed. The rigidity build into these contracts will put a question mark on any major future partnerships between the government owned enterprise and major corporate players.

By suing RIL, NTPC has turned a matter that was amendable to negotiation into a legal battle, which may drag on for months if not years. This will mean a loss of time and money. The case against RIL could cost NTPC up to Rs 12,000 cr. It will not only hit the interests of RIL but also derail other government power projects. So the question arises: who is likely to gain from this mess? Certainly not the public. There seem to be certain vested interests that want to derail the entire process. In other words, what explains the sudden decision to file a suit when RIL was still in the process of negotiations with NTPC. NTPC by going to the court has jeopardized any chances of getting gas from Reliance industries. The process of negations was not allowed to be taken to its logical end. The meeting specially called by the petroleum secretary S C Tripathi with the power secretary, RV Shahi with the representatives of the company was postponed after the power minister’s death. Thereafter NTPC filed a case in the Bombay High Court.

At a time when petroleum prices as well as the gas prices are going up and the issue of energy security is becoming central to the functioning of large complex economies like India, it is important that mutual differences between power biggies are resolved in a manner that is both realistic and sensible. Also, alternative sources of energy to Petroleum like gas must be encouraged by the government and there should every attempt made to create conductive conditions for the private sector to get into energy security so that the nation benefits in the long run. Indeed, Bombay High court has suggested NTPC to resolve the matter by engaging in negotiations.

Hopefully, this matter will get out of the legal tangle and get resolved sooner than later.