Ambanis' revised gas supply pact valid only till 2022

2022 is the year when the revised non-compete agreement between the two Ambani brothers that bars Mukesh from taking up gas-fired power projects ends

Anil Ambani Group firm Reliance Natural Resources’ (RNRL) new gas supply agreement with Reliance Industries (RIL) is valid only till 31 March, 2022 and even in this, there is no mention of volume or the tenure of gas supply, reports PTI.

While the gas would be given by Mukesh Ambani-led RIL to the Anil Ambani group firm at the government specified price, the duration of the gas supply will be decided in the Gas Sales & Purchase Agreement (GSPA) as and when the two sides sign it.

The fuel supply, under such an agreement, could stretch beyond 2022 — depending on availability and allocation by the government.

2022 is the year when the revised non-compete agreement between the two Ambani brothers that bars Mukesh from taking up gas-fired power projects ends.

RNRL and RIL on 25th June signed a new Gas Sales Master Agreement (GSMA), which replaced a similar contract of January 2006, outlining the Mukesh-run firm's intent of supplying gas to Anil Dhirubhai Ambani Group (ADAG) power plants on terms set by the government, industry sources said.

The GSMA does not mention of any volumes that RIL will supply to the ADAG firm or specific power plants which will receive it and only states that gas will be supplied to power plants that are sanctioned by the government for receiving gas.

The new supply agreement was entered into after the Supreme Court on 7th May rejected RNRL's case for gas at rates lower than government approved price. The court had asked RIL and RNRL to enter into a suitable agreement bearing in mind the government's right to approve price and users.

Sources said the price of gas in the GSMA is stated to be according to the pricing formula that the government had approved in 2007. According to this formula, RIL is selling gas from its eastern offshore KG-D6 fields at $4.2 per million British thermal unit (mmBtu), at $60 dollars per barrel, till March 2014.

The rates may change in 2014 if the crude benchmark in the formula is changed in line with the international oil trend at that time.

Sources said unlike the January 2006 GSMA that provided for RIL supplying 28 million standard cubic meters per day (mmscmd) of gas to ADAG plants like the mega 7,800 MW Dadri unit near New Delhi at a fixed price of $2.34 per mmBtu for 17 years, the new supply pact does not mention either volumes or duration.

Once, the government approves of allocation to an ADAG power plant, RIL will enter into a specific Gas Sale and Purchase Agreement (GSPA) for supplying gas to the unit.

"This Agreement (GSMA) shall be effective upon its execution and shall terminate on 31 March, 2022. Provided, however, the GSPAs entered into pursuant to this 2010 Gas Master Supply Agreement shall remain in force and effect in accordance with their respective terms," a source said, quoting from the renegotiated GSMA.

So, if the government was to allocate gas for a tenure longer than the validity of GSMA, RIL will enter into GSPAs for the said duration and supply gas to ADAG plants accordingly.

Also, RIL is to supply gas to RNRL and its affiliates.

Affiliates are defined as Reliance Infrastructure Ltd and its subsidiaries and Reliance Patalganga Power Ltd and its subsidiaries.

Subsequent to signing of the GSMA, RNRL is being merged with another Anil Ambani Group firm Reliance Power, which plans to set up the Dadri plant, besides new units in Gujarat, Maharashtra and Andhra Pradesh, will inherit the GSMA.

In the new GSMA, RNRL has not only agreed to pay the price approved by the government but also a marketing margin of $0.135 per mmBtu.

RNRL had last year refused to pay marketing margin to RIL terming them as "illegal". It subsequently paid the amount, charged by RIL for its marketing effort, "under protest."

In the GSMA, the two firms have agreed that level of production of gas from the block would be subject to the Development Plan approved by the government.

Also, RNRL has agreed to not trade the gas it gets from RIL and the usage being restricted to the plants to which it is allocated.


Business sentiment continues to improve: D&B India

Robust growth in industrial production, stabilising domestic consumption, rapidly growing investment demand coupled with increase in imports and exports seems to have supported growing business confidence

The Dun & Bradstreet (D&B) Composite Business Optimism Index (BOI) for the third quarter (Q3) of 2010 rose to a two-year high of 150.0 from 132.1 in Q3 2009, recording an increase of almost 13.6% on a year-on-year (Y-o-Y) basis, reports PTI.

The sustained improvement in the BOI, which is now at a two-year high, is reflective of the continuous strengthening of confidence amongst the corporates, D&B said in a statement in Mumbai.

Robust growth in industrial production, stabilising domestic consumption-demand, rapidly-growing investment demand coupled with increase in imports and exports seems to have supported growing business confidence, D&B said.

“Improvement in hiring intentions of corporates, as reflected in a 10-quarter high resultant optimism for employees, is a positive development and augurs well for the future growth prospects of the economy.”

“However, India Inc remains cautious regarding its profit expectations, as margins are likely to be under pressure on account of high input prices and rising interest rates" D&B's president & CEO, Kaushal Sampat, said.

"Going forward, the impact of inflation and rising interest rates on domestic demand conditions will be crucial in determining business expectations. Also, the advancement of monsoon and how it pans out during the rest of the season would play an important role in shaping business sentiment in the near future. The developments surrounding the debt crisis in some European countries would also cast their influence on business sentiment going forward," Mr Sampat said.

Majority of the BOI respondents expect demand conditions to improve in the forthcoming quarter.

While 81% of the respondents expect an increase in volume of sales, 5% of the respondents anticipate volume of sales to decline in Q3 2010. Around 14% of the respondents expect volume of sales to remain unchanged.

The resultant optimism for volume of sales stands at 76%, an increase of 2 percentage points as compared to the previous quarter.

Profit expectations of the Indian corporates remained muted, with the resultant optimism for net profits recording a marginal increase of 1 percentage point during Q3 2010 as compared to the previous quarter.

However, the resultant optimism for net profits which stands at 67% recorded an increase of 8 percentage points as compared to Q3 2009, D&B said.


Daily Market View: It was a one-day blunder

The Sensex has moved in a narrow band over 13 trading days. It is time for a big move

The market ended lower today, taking cues from weak Asian and European markets. The Sensex stood at 17,471, down 143 points (1%) and the Nifty settled at 5,241, down 48 points (1%). The indices started the day with a plunge weighed down by weak Asian markets. Trading was range-bound till afternoon.

The market slipped further, tracking weak European markets in the afternoon session.

Asian markets ended mostly in the red on Wednesday on weak US economic data released overnight, making investors worry about global economic growth. Key benchmark indices in Hong Kong, Indonesia, Taiwan, Singapore, Japan and South Korea were down 0.2% to 1.1%. However, China's benchmark index - the Shanghai Composite - bounced back into positive territory. It was up 0.5%.

Wall Street rebounded on Tuesday. However, bearish sentiments reasserted themselves on worries over the pace of the global economic recovery. The Dow was up 57.1 points (0.6%) at 9,743.6. The S&P 500 was up 5.5 points (0.5%) at 1,028. The Nasdaq was up 2 points (0.1%) at 2,094. US president Barak Obama said that the country is expected to double exports over the next five years. The White House Council of Economic Advisers estimates that rising US exports have added more than one percentage point to US growth in the last nine months.

China has tried to clear doubts over concerns on whether it will dump its huge stock of US bonds, stating that any increase or decrease in the holding of US bonds is a normal investment operation. China held $900.20 billion in US Treasuries at the end of April, according to US Treasury data released on 15th June.

Back home, according to a monthly report of VCCEdge, the financial research platform of, the mergers and acquisitions (M&A) deal value during the April-June period touched $24.8 billion, taking the total M&A kitty so far this year to $48 billion. In comparison, it was $2.8 billion in the second quarter of 2009.

The deal count also witnessed an upward trend and surged to 182 in Q2 of the 2010 calendar year, compared to 98 in the year-ago period. The period saw as many as 91 domestic deals worth $14 billion, compared to 50 deals worth $1.7 billion in the year-ago period.

In its latest analysis of the global manufacturing competitiveness index, Deloitte said that Asian giants China, India and South Korea led the current competitiveness index and were expected to retain their top three rankings over the next five years.

In contrast, the dominant manufacturing superpowers of the late 20th century are expected to become less competitive. Other Western European nations will be similarly challenged, especially the Czech Republic, the Netherlands, Switzerland, Ireland, Italy and Belgium.

Foreign institutional investors were net buyers of Rs342 crore in the equities segment on Tuesday. Domestic institutional investors offloaded stocks worth Rs84 crore.

GEI Industrial Systems (up 1.1%) has received new orders worth Rs60.82 crore. The order from the oil & gas sector is worth Rs22.37 crore for air-cooled heat exchangers from Indian Oil Corporation for its Paradip refinery project. The other orders, having a total value of Rs38.45 crore, are from the power sector for air-cooled vacuum steam condensers from ThyssenKrupp Industries India Pvt Ltd and Cethar Vessels.

Sarda Energy & Minerals (down 1.3%) has, through its wholly-owned subsidiary based in Singapore, entered into a long-term arrangement to buy coal originating from mines in Indonesia with a provision for sharing of economic benefits. The authorities in Indonesia have granted the environment clearance for the coal mines and accordingly a mining licence has been issued for mining of coal.

The board of Zodiac Clothing Company (down 2.2%) has recommended issue of fully paid-up bonus shares to the members in the proportion of one equity share for every two shares held.

Suryajyoti Spinning Mills (down 0.2%) has completed buyback of 7,000 foreign currency convertible bonds (FCCBs) worth $7 million at a discount, from internal accruals and a fresh external commercial borrowing (ECB) loan.


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