According to NELP production sharing contracts, while allowing the freedom to market natural gas, it also recognizes the government’s role in directing usage. In this role, the government formulated a Gas Utilization Policy where it envisaged priorities for every sector with existing consumers (with latent demand) getting preference over greenfield projects. Therefore, RIL does not have the freedom to sell the gas.

It was always understood by the parties to this litigation that, under the PSC, the contractor’s right to market the gas is subject to the approval of price formula / basis of Government of India as well as the gas utilization policy of the Government of India. Therefore, no third party can suggest a different interpretation to the provisions of the PSC, in particular Article 21, other than the interpretation that has been laid out and understood by the parties to the PSC.

Extract from the NELP-I KG-D6 production sharing contract

Valuation of Natural Gas
21.6.1 The Contractor shall endeavour to sell all Natural Gas produced and saved from the Contract Area at arms-length prices to the benefits of Parties to the Contract
21.6.2 Notwithstanding the provision of Article 21.6.1, Natural Gas produced from the

Contract Area shall be valued for the purposes of this Contract as follows:
(a) Gas which is used as per Article 21.2 or flared with the approval of the Govt. or re-injected or sold to the Government pursuant to Article 21.4.5 shall be ascribed a zero value;
(b) Gas which is sold to the Government or any other Government nominee shall be valued at the prices actually obtained; and
(c) Gas which is sold or disposed of otherwise than in accordance with paragraph (a) or (b) shall be valued on the basis of competitive arms length sales in the region for similar sales under similar conditions.

The formula or basis on which the prices shall be determined pursuant to Articles 21.6.2 (b) or (c) shall be approved by the Government prior to the sale of Natural Gas to the consumers/buyers. For granting this approval, Government shall take into account the prevailing policy, if any, on pricing of Natural Gas including any linkages with traded liquid fuels, and it may delegate or assign this function to a regulatory authority as and when such an authority is in existence.
PSC clearly mentions that approval is required before any gas sale can commence.
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