SC upholds GAIL decision to end contract with GSPL

Sep 18 2013, 03:45 IST
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SummaryIn a matter related to the fixing of re-gasified liquified natural gas (RLNG) prices, the Supreme Court on Tuesday endorsed the GAIL

In a matter related to the fixing of re-gasified liquified natural gas (RLNG) prices, the Supreme Court on Tuesday endorsed the GAIL (India) decision to terminate contract with the state-owned oil and gas exploration company, Gujarat State Petroleum Corporation, for providing natural gas imported from Qatar.

While setting aside the Gujarat HC's judgment that quashed its termination letter, a bench comprising justices GS Singhvi and V Gopala Gowda said the HC “should have relegated GSPL to the remedy of arbitration” keeping in view the complex nature of the price fixation mechanism.

“Unfortunately, the HC presumed that the negotiations held between the (parties) were not fair and that (GSPL) was entitled to the benefit of the policy decision taken by the Centre despite the fact that it had not only challenged that decision but had also shown disinclination to accept the offer made by the appellant (GAIL) to supply gas at the pooled price and had insisted on mutually agreed price,” the apex court said.

“... the appellant (GAIL) had offered to sign fresh long-term sale agreement with all the existing customers including the respondent (GSPL) for supply of RLNG upto April, 2028 at a uniform pooled price in terms of the policy decision ... A reading of the draft RLNG contract and Price Side Letter sent by the appellant to the respondent also shows that the appellant had offered to supply gas to the respondent at the pooled price but the latter did not agree and insisted on negotiation for the contract price of RLNG to be effective from 1.10.2009,” Justice Singhvi, writing for the bench, stated.

While the HC also asked GAIL to engage in a bonafide manner in fixing the gas prices with the state PSU from January 1, 2014, senior counsel R Nariman, appearing for GAIL, argued that the HC could not have entered into a contract for GAIL and direct it to charge only pool prices.

GAIL had entered into a a long-term gas sale agreement for 15 years in February 2004 with GSPC to provide gas till 2019. And as per the contract, the price renewal for the gas to be provided from January 1, 2014, onwards was to be negotiated by the two parties by December 31, 2011.

However, the prices could not be agreed within the stipulated time and after the deadline got over, GAIL terminated the contract to supply the gas.

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