In an interview to CNBC-TV18, Prashant Bhushan, Advocate, SC; SP Tulsian of sptulsian.com; Soli Sorabjee, Former Attorney General and Gopal Jain, Senior Advocate, SC gave their reading of Reliance Industries ' arbitrage notice to the government over delay in effecting new gas prices.
Below is a verbatim transcript of the interview
Shereen: Reliance Industries has served an arbitration notice to the government to include gas pricing in it, your first reaction?
Sorabjee: I don't know the terms of the contract between the government and Reliance. The only thing I can say is if they have served a notice they will have to go through the arbitration route. That's all that it implies in India.
Shereen: What do you make of the fact that this matter is currently being heard in the Supreme Court? Reliance, in fact, has just last week if my memory serves me correctly concluded its arguments in Supreme Court on the issue of gas pricing and now the decision to actually serve the government with an arbitration notice. What do you make of this?
Sorabjee: It was absolutely bad court management. The matter was argued at length and thereafter because of the remaining days being very few, 2 or 3 days and one of the judges now retiring or being appointed to other tribunal, the whole thing will have to be heard again. Therefore another bench. That is rather sorry state of affairs. As is aid that is bad court management.
Shereen: This seems to be an instance of bad court management in a way. However going back again to the point that Harish Salve was making that we have got a time bound process. Here at the top of his head he said 90 days and then we will go ahead and appoint. If the government doesn't appoint one but do you really see this moving at the clip that Harish Salve seems to suggest because look at what has happened to the previous arbitration proceedings?
Jain: In most cases this doesn't go at a T20 speed. It goes at its own speed because the government decision making process is slow. Given the importance of the issue and its implications across not just Reliance and government but several other parties may be this moves at a faster pace but all that will really depend with the change of government, the importance that they give it. Nobody wants to have such an issue left uncertain and open ended. So, may be given that issue and its larger implications we see some faster decision making process in this case.
Shereen: Reliance Industries, BP and Niko have issued an arbitration notice to the government and have now included the gas price issue in the arbitration which is exactly what Harish Salve the Reliance counsel had been arguing in the Supreme Court, your first reaction?
Bhushan: We have already been saying, we have pointed out that this arbitration is a collusive affair between Reliance and the government which has been colluding with them. They colluded with them first in allowing them to retain fields which they ought to have relinquished. Then they colluded with them to allow them to increase their capital expenditure from USD 2.4 billion to 8.8 billion.
Then they colluded with them by allowing them to drop their production from the promised 80 mmcd to now 8 mmcd and did not penalize them. Eventually when Jaipal Reddy started penalizing them for that he was unceremoniously removed and a pliant minister Veerappa Moily was brought in. So, all that is the subject matter.
Nayantara: So, we will continue to see USD 4.2 maybe till the new arbitration...
Salve: I am just saying we do things step at a time. The media wants answers of what is going to happen in 2015 today; that is not possible.
Nayantara: The last time you slapped an arbitration notice against the government if my memory serves me right was in November 23, 2011. That arbitration still has not started, we saw plenty of back and forth on deciding the three arbitrators. Is gas pricing going before the same arbitration panel or again are we likely to see a lot of back and forth?
Salve: I can assure you this time I have advised the clients - first of all we have invited the government that let the same tribunal hear this case also. That is most cost efficient, most time efficient and most sensible. There are timelines in the contract.
Shereen: What kind of timelines if you can specify that for us, if you can give us details because as Nayantara was pointing out the last arbitration notice that you served was in 2011 and look where we are today?
Salve: Sensible contractors doing business in a country don't go running to the court at the drop of hat. You keep writing letters to the government trying to persuade them. That situation now may not be, now if they don't appoint I think 90 days is the deadline. I am talking at the top of my head, some such figure. If they don't appoint we will move the court immediately and under the contract if we move to court and the government has not made an appointment the court will have to appoint a non-Indian national as the government representative. That is the specific provision in the contract.
Anuj: You still have not answered the point that come next Monday at what price would the domestic companies get gas.
Salve: I don't know. We will decide. Let us see how the government reacts.
Anuj: What happens to the bank guarantee that - there were reports last week that government has returned the bank guarantee that Reliance had given. There is some part of bank guarantee which still had to be given, what happens to that?
Salve: All these decisions now will be taken in a meeting which I will have with the clients and I am afraid I can't share the details of what we discuss with you because now we are in litigation mode.
Nayantara: If you are in litigation mode can you tell us a little bit more of what the client is thinking. For example is it going to continue doing the cpaex at the KG-D6 for development wells?
Salve: Once you are in litigation mode you don't talk and that is going to be my advice to the client.
Shereen: You are saying that your advice your clients is going to be not to talk but you could give us some sense of whether any further investments are likely to be made at the KG-D6, production levels will remain where they are?
Salve: No idea. We have to take stock, decide. If they decide to invest at an appropriate time the media will be told. There are a lot of complex decisions to be taken. I am in London, they are going to come here next week. We will meet and decide what to do.
Shereen: You are saying you are going to be meeting the clients next week to take a decision on what happens to production levels at the KG-D6?
Salve: No, I am not saying that. I am saying I have to meet the clients and we decide the way forward. You can speculate about what all we will do.
Anuj: We have seen a big rally in Reliance stock, what happens Monday morning, is this a recipe for big fall in stock price or not quite?
Tulsian: I see this arbitration notice to have been issued in haste. If you see three events this has been clearly saying that new government which has already notified the pricing formula should decide the price within that pricing formula.
All along I have been hearing Harish Salve, Shereen, and everyone that means one thing is certain that Rangarajan Committee formula has been accepted by the Reliance Industries also. So, let's not jump for the price of USD 13 and all that. It cannot exceed to a rate beyond USD 8.
We have been talking on so many issues, now take three situations which has prohibited for the contractor to go ahead with the increased price. First is the EC embargo, that will come to an end maybe on Monday or maybe on May 16; take the situation I don't know the technicality.
Then second is the Supreme Court, again reconstitution of the bench because one judge has retired. Now, that matter also can get thrashed out by June end when the courts will open because that matter has already been taken on priority by Supreme Court. Third is taken up by the government. I don't understand that arbitration proceedings can really precede all these three events and can get concluded maybe in couple of months or so. So, what is the hurry?
EC has already gone out of the way that\'s what I presume because they put again embargo or they put a stay there is no stay from Supreme Court in respect to this. So, ultimately the ball will be moving back in the court.
We have already seen fate of the arbitration proceedings in respect to the penalty. There the arbitrators are not getting the appointed, same thing and same exercise and same problem can be faced here also. How can you expect that the arbitrators will get so quickly appointed? The arbitration proceedings and hearings will go on quickly and just in one month things will be decide because this is not the alone Reliance Industries, which is affected. There are other party GSPC, ONGC, Oil India. So many other upstream companies are involved. So, arbitration proceedings cannot be taken in isolation.
Reliance Industries is here as contractor. They are not going to lose the money because whatever ultimately the investments will get probably the recovery may get delayed. So, honestly I don't find any substance in the issuance of this arbitration notice by the company on the government.
Now, coming to the effect on the share price, honestly, I don't think that this will have any kind of effect. In fact Reliance Jio, the kind of directions issued or maybe the matter now having gone in Supreme Court, if we would have discussed that probably that may be having a negative effect were Prashant Bhushan is challenged of the unified licenses or given it for Rs 1600 crore based on the pricing of 2001 which has been quashed by 2012 Supreme Court order. So, that seems to be more significant then this arbitration proceedings. I honestly see premature and having no effect.
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