NEW DELHI: The role of the government in approving sale of natural gas from the Krishna Godavari basin took centrestage in the proceedings before a three-judge bench of the Supreme Court on Wednesday.

RIL told the court that it would be not be able to sell gas at $2.34 per million British thermal unit (mmBtu) to Anil Ambani’s Reliance Natural Resources (RNRL) without the government’s consent as the state is the owner of the natural resource.

“The gas is a national property and the government is the owner,” RIL’s lawyer Harish Salve told the three-judge bench headed by Chief Justice KG Balakrishnan. The SC is hearing an appeal against a Bombay High Court ruling directing RIL to sell gas to RNRL at $2.34 per mmBtu as against a government-set price of $4.20 per mmBtu.

The justices were also subjected to a tutorial on the economics of a production-sharing contract (PSC) or the agreement between gas producers such as RIL and the government. This happened after queries were raised from the bench on the profit RIL would make from selling KG gas to various users at different prices.

“If you (RIL) are selling gas to NTPC at $2.34 rate, will you not make profits? Even if we assume, you are making a marginal profit from such sale, would not the rate of $4.20 to RNRL result in making a huge profit?” asked Justice RV Raveendran, who is part of the bench, to RIL’s counsel.

This prompted a lengthy explanation from the RIL side on how the PSC worked. Mr Salve explained, with the help of RIL’s executive director PMS Prasad, that the PSC entitled the company to recover its costs. The PSC has a formula which stipulates that the contractor or the gas producer can recover his investment from revenues generated by the sale of gas, while a percentage is kept by the government. The government’s take escalates once a certain multiple of the investment, which varies from contract to contract, is recovered.