Ambani's gas row

Finally TOI published an article that comprehensively explains the gas feud going on between the two Ambanis.
The gas dispute centres around the area of the Krishna Godavari basin in Andhra Pradesh. Under the NELP - New Exploration and Licensing Policy private operators were allowed to explore and produce natural gas in certain blocks of oil and gas fields in India. RIL in 2000 got 12 blocks in the KG Basin. They signed a production sharing contract with the Government of India, which had all the terms of the lease included in it alongwith the share of revenues that would go to the Government.
The dispute between the Ambanis centres around the PSC - production sharing contract for block D6, which was seinged by RIL, GOI and NIKO (a Canadian company) in 2000.
RIL is presently Mukesh Ambani's company. Mukesh Ambani is the elder brother of Anil Ambani. In 2005, the brothers split up the Reliance group between themselves. However, they forgot to look into the terms of the D6 power sharing contract and its relationship to REL, the company that Anil Ambani got later. Mukesh Ambani got the oil and gas while Anil Ambani got the power segments. RIL was split and Reliance Natural Resources Ltd emerged.
In 2003, Reliance Energy Ltd (REL) set up a gas based power plant at Dadri in Western UP for which gas would be supplied by RIL's KG basin blocks. REL went to Mukesh Ambani. RNRL was formed which was to transfer the gas from KG Basin to REL. RNRL was given to Anil Ambani. All previous RIL shareholders were now RNRL shareholders, but there was no Mukesh, only Anil.
The erstwhile RIL is now with Mukesh Ambani, a point to remember.
In 2005, RNRL (Anil) and RIL (Mukesh) signed a MoU on what terms the gas would be given for the Dadri project. The MoU specified that the price at which the gas would be supplied would be the same as the price at which RIL would supply gas to an NTPC project. (TOI 7 May 2009) This price was $2.34 per mmbtu (million metric British Thermal units).
WHAT IS THE PROBLEM?
RIL (Mukesh) says that the price given of $2.34 per mmbtu is not applicable to its deal with RNRL (Anil) for the following reasons:
i. Gas prices have increased since 2005 MoU
ii. Deal with NTPC has not yet gone through owing to some legal complications regarding penalty price for non-compliance
iii. Under the PSC signed with the government, the government has final say on the price at which it can sell gas to third parties and can decide to whom the gas should be sold.
RNRL rebutts the points as follows:
i. Indian gas prices are historically lower than international gas prices
ii. Bid price for NTPC remains in place irrespective of whether the deal with NTPC has gone through or not
iii. Anil maintains that the government only has the right under the PSC to fix the price at which gas will be valued fro theprupose of determining the government's share of revenues from the project. RIL is free to sell its share of the gas at whatever price it decides.
WHAT ABOUT $4.20?
In May 2007, RIL got bids from various gas users and a price of $4.20 was arrived at, which was approved by the Petroleum Ministry. RNRL alleges this is an eye wash.
The government said that the price of $2.34 was not right and that gas was a national asset and its allocation could not be decided by some private arrangement between Anil and Mukesh. Some people have said that the ministry's stance is the same as Mukesh's and that there may be some complicity between Murli Deora (Petroleum Minister) and Anil.
Since RIL refused to supply gas at the terms specified in the MoU with RNRL, the Anil group went to the Bombay High Court, which ruled that RIL must renegotiate with RNRL. Anil wants the gas on the terms of the 2005 MoU, and so went to the Supreme Court.
On 7 May 2009, the Supreme Court bench led by Chief Justice K G Balakrishnan issued an order which favoured Mukesh Ambani's RIL.
"RIL does not have absolute right over gas and price is subject to government approval. . . since the MoU (of the Ambani family) has not been made public, it does not fall in the corporate domain. Under the Production Sharing Contract, it is for the government to evaluate the price of fuel," Justice P Sathasivam said.
The Supreme Court has directed RIL to renegotiate with RNRL. The time limit is six weeks to arrive at an agreement in line with government policy.
RNRL said that as per the MoU it was to get 28 mmscmd of gas a day from the D6 block, at $2.34 per mmBtu. The later rate of $4.20 per mmBtu was not viable and applicable. The lower rate was to hold for the next 17 years.

EET

Exempt, exempt, tax

Under EET, investement and interest are not taxed, but maturity proceeds are. It applies to the NPS - New Pension Scheme, but not to government run employee's provident fund and the public provident fund.

But will having retirement savings be taxed as income merely not just defer tax liability? Particularly in a country like India where there is no social security. A rethink may be in order.

But then, what about the argument that exemptions distort the tax system? They do after all. It is a quandry to be sure. Unless the quality of the expenditure improves, nothing can be fixed with just cause.