Rs 26,000-crore appeal: Supreme Court rejects Essar Steel’s plea for compensation

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New Delhi | Published: August 25, 2018 5:19:36 AM

The Supreme Court on Friday dismissed embattled Essar Steel’s petition seeking compensation of Rs 26,000 crore from the government for “disrupting” supply of gas to its sponge iron/steel plant in Hazira, Gujarat.

essar, essar steelEssar required 5.50 million standard cubic metres per day of natural gas as feedstock for the steel manufacturing process.

The Supreme Court on Friday dismissed embattled Essar Steel’s petition seeking compensation of Rs 26,000 crore from the government for “disrupting” supply of gas to its sponge iron/steel plant in Hazira, Gujarat. A bench led by justice Ranjan Gogoi however said that it will be open to Essar “to contest the proceedings in the connected cases relating to allocation of gas to different priority sectors”.

Essar Steel had earlier moved the apex court seeking parity with the fertiliser and power sectors after the ministry of petroleum and natural gas in March 2015 had introduced a gas pooling policy, ‘Approval to innovative mechanism for utilisation of stranded gas based generation capacity’, to ensure adequate supply of gas to stranded gas-based power plants.

A batch of appeal on the issue are pending before the apex court.

The Reserve Bank of India had classified Essar Steel in the list of defaulters against which proceedings were initiated in June last year. Essar Steel has a debt of Rs 49,000 crore.

Accusing the government of acting in an arbitrary manner, Essar claimed that it faced extreme financial and commercial duress due to the non-availability of gas for its 10 million tonnes per annum gas based sponge iron/steel plant, set up at an investment of more than Rs 37,500 crore, since March 30, 2011, the day the government curtailed gas supply to the steel sector.

Essar required 5.50 million standard cubic metres per day of natural gas as feedstock for the steel manufacturing process.

According to the company, it had set up its gas-based plant on the basis of the assurance of gas supply given by government. “The basic raw material/feedstock for manufacture of sponge iron is natural gas and the same cannot be replaced by any other material like LPG, as technologically these plants are designed to use natural gas only as reductant, thus the non-supply of natural gas has fatal and severe consequences for Essar Steel’s commercial operation and financial viability,” the petition stated.

Seeking a direction to the government to pay compensation to it on account of its “arbitrary and erroneous decision of March 2011”, whereby the gas supply to Essar Steel’s gas-based steel plant was completely curtailed, it further stated that its steel complex worth Rs 50,000 crore lost its commercial value due to non-supply of gas, thus leading to default in payment of loans and advances taken from various banks and financial institutions as it was unable to recover its cost. This non-supply of gas forced it to purchase natural gas from the spot market at much higher price than the agreed price under the long term gas supply agreement, thus resulting in a loss of Rs 2,000 crore per annum, Essar said.

“As a result of this loss, the petitioner’s economic viability has been completely jeopardized and its fundamental rights have been impinged,” it said, while challenging the gas allocation policy.

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