Do you think RIL breached the contract agreement, since the contract

NTPC–Reliance: Conflict Over Gas Supply

 

Do you think RIL breached the contract agreement, since the contract

The caselet deals with the transparent, competitive bidding policy of NTPC for purchasing liquefied natural gas (LNG). In this respect, the case also examines the various problems involved in the proposed Gas Sale and Purchase Agreement between Reliance Industries Limited and NTPC

Issues:

  1.  Competitive bidding in industrial business transactions

  2. Importance of having a transparent competitive bidding policy 

  3. Understanding the factors affecting the pricing strategy

  4. The complications of a Gas Sale and Purchase Agreement


Introduction

In December 2005, the proposed agreement between Reliance Industries Limited (RIL) and National Thermal Power Corporation (NTPC) was on the verge of failure. RIL threatened to sue NTPC if the agreement for the supply of gas was not signed before the year end (31 Dec. 2005).       

RIL gave an ultimatum to NTPC that it should either sign the contract or RIL would pay the bank guarantee amount of US$4million to NTPC and wind up the contract. As part of the proposed agreement RIL was to supply liquefied natural gas (LNG) to NTPC.

NTPC is India’s largest and the world’s sixth largest power generator. It was set up in 1975 by Government of India and had an installed power generation capacity of 23,749 MW (as on March 31, 2005).

This accounted for around 19 percent of India’s total power requirements. NTPC, as part of its long-term plans, was going through a phased capacity expansion by establishing new power plants and acquiring existing power plants…

Questions for Discussion:

  1. “Do you think RIL breached the contract agreement, since the contract was awarded to it based on its ability to provide the gas from 2007 and at a specified rate quoted by RIL?” Give reasons for your answer.

 

  1. This is a typical case of pre-contractual conflict. How do you think this dispute can be solved?

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