Supreme Court upholds government’s LNG pool-pricing policy

The Supreme Court has upheld the government’s 2007 directive facilitating pool-pricing of re-gasified liquefied natural gas (RLNG).

The government, in order to make fuel affordable to the Dabhol power plant, had decided to raise the price of LNG imported by Petronet LNG from Qatar on two long-term contracts by averaging its price with the costlier LNG imported for the new consumer, Ratnagiri Gas and Power.

Petronet’s long-term LNG import price of $2.53 per million British thermal unit (mBtu) was averaged with spot LNG, priced at about $8.5 per mBtu.

The Central government’s notification had then directed state-run oil companies IOC, GAIL and BPCL — Petronet’s partners — to charge uniform prices from existing and new consumers. The petroleum ministry’s letter dated March 6, 2007, on uniform pooled price of RLNG had resulted in price differences in RNLG for then existing consumers such as Essar Steel and Gujarat State Petroleum Corporation and new consumers like Ratnagiri Gas and Power, developer of Dabhol power plant.

A bench headed by Justice V Gopala Gowda on Tuesday dismissed various appeals filed by Essar Steel, Essar Power and Gujarat State Petroleum Corporation (GSPC), challenging the Gujarat High Court’s 2008 judgment, which upheld the Centre’s notification facilitating pool-pricing of RLNG.

The companies had sought cancellation of the Centre’s decision to make a policy change even in existing contracts. They alleged that the state-run oil firms had arbitrarily and illegally increased the prices charged from it under the existing long-term contracts having a fixed price.

Questioning the policy for uniform pooled price of imported RLNG, Essar had argued that the same had been framed only as short-term, stop-gap arrangement to benefit one entity, Ratnagiri Gas & Power (erstwhile Dabhol), in Maharashtra.

However, countering the charge, the government had argued that the policy decision was in public interest, as Essar’s contract was not with any private firm, but with Petronet LNG, which is a special purpose vehicle formed by the oil PSUs and others, and is the primary supplier of LNG. Besides, the agreement had a clause for price variations.

While Essar Steel and others had challenged the directive to average the long-term LNG price of Petronet with high-cost, short-term fuel purchase for Dabhol in the Delhi High Court, GSPC and others had challenged the order that raised prices of LNG for existing Petronet customers in the Gujarat HC.