INDUSTRIAL MANAGEMENT

CASE STUDY

Department
Of
Computer Science & Engineering
[ 5th Sem ]

Bharati Vidyapeeth’s College of Engineering

New Delhi

Submitted to : Ms. Ritika Submitted by : Samiksha

Malhotra 50251202718
TOPIC OF THE CASE STUDY: NTPC – Reliance: Conflict over Gas Supply

INTRODUCTION

NTPC

NTPC Limited is an Indian public sector company that is active in the electricity
generation industry and in related operations, formerly known as the National Thermal
Power Corporation Limited. This enterprise is founded under the 1956 Act of the
Companies and promoted by the Indian government. The company's head office is in
New Delhi. The main business of NTPC is electricity generation and sales to
state-owned power distribution and INDIA state power boards. The business is also
active in advising and managing projects that include engineering, project
management, construction management, and power plant operation and management.
The firm has also been researching petroleum and gas and mining coal. It is India's
largest power supplier and produces 62.086 MW of electricity.
In terms of their emphasis on power plant operations at the higher efficiency rate, 16
percent of national capacity accounts for more than 25 percent of overall power
generation (80.2 percent versus the national PLF ratio of 64.5 percent).

RIL

Reliance Industries Limited (RIL)​ has its headquarters in Mumbai, Maharashtra,

India and is the Indian multinational conglomerate business. Reliance owns energy,
petrochemicals, textiles, natural resources, retail and telecommunications businesses
in India. Reliance, the largest publicly traded company in India and the largest in
China, after having recently surpassed the government-run Indian Oil Corporation, is
among the most profitable companies in India On 22 June 2020 Reliance Industries
was the first Indian company to cross 150 billion US Dollars in market capitalisation,
following its latter.
As at 2020, it is ranked 8th among the world's 250 Top 250 energy firms by Plats in
2016. The company is ranked 8th overall in the Fortune Global 500 list of the world's
largest companies. India remains the biggest exporter and accounted for 8% of total
exports of India products estimated at €1,47,755 and of market access in108
countries[9]. Reliance is responsible for almost 5% of India's total customs and excise
duty revenues. It is also India's largest private-sector income tax-payer.
ABOUT THE AGREEMENT.

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 the 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. What is the NTPC-Reliance dispute all about?

NTPC planned to expand the two gas-based plants, whose present capacity is 645 Mw
by another 645 Mw each. This was planned in 2002, when the cost of setting up each
Mw was Rs 3.25 crore and would have cost NTPC a total of Rs 2,128 crore. In the
past decade, the cost of setting up each Mw has gone up to Rs 4.5 crore and the total
bill to nearly Rs 2,950 crore.
An NTPC executive said the company requested the government for allocation of gas
to the projects but this did not happen.
NTPC had invited a bid for supply of natural gas to these projects in October 2002 and
RIL had emerged the sole successful bidder. It won the right to supply 12 million
standard cubic metres a day (mscmd) of gas to NTPC's projects in Gujarat at $2.34 for
a million British thermal units (mBtu). RIL had quoted the lowest price in 2004 in the
bidding process and was subsequently issued a letter of intent (LoI). NTPC says it has
a concluded contract but RIL that matters did not go beyond an LoI.
NTPC claims there is a contract in which RIL promised to supply 12 mcmd (million
cu. m a day) of gas for the expansion of the Kawas and Gandhar plants for 17 years at
$2.34 per mmBtu. RIL says there’s no such contract.
Issues:
» Competitive bidding in industrial business transactions
» Importance of having a transparent competitive bidding policy
» Understanding the factors affecting the pricing strategy
» The complications of a Gas Sale and Purchase Agreement

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

Common ways to solve a conflict-

1. Mediation
The goal of mediation is for a neutral third party to help disputants come to a consensus on
their own.
● Rather than imposing a solution, a professional mediator works with the conflicting
sides to explore the interests underlying their positions.
Mediation can be effective at allowing parties to vent their feelings and fully explore their
grievances.
Working with parties together and sometimes separately, mediators can try to help them
hammer out a resolution that is sustainable, voluntary, and nonbinding.

2. Arbitration
In arbitration, a neutral third party serves as a judge who is responsible for resolving the
dispute.
● The arbitrator listens as each side argues its case and presents relevant evidence, then
renders a binding decision.
The disputants can negotiate virtually any aspect of the arbitration process, including whether
lawyers will be present at the time and which standards of evidence will be used.
Arbitrators hand down decisions that are usually confidential and that cannot be appealed.
Like mediation, arbitration tends to be much less expensive than litigation.

3. Litigation
The most familiar type of dispute resolution, civil litigation typically involves a defendant
facing off against a plaintiff before either a judge or a judge and jury.
● The judge or the jury is responsible for weighing the evidence and making a ruling.
The information conveyed in hearings and trials usually enters, and stays on the
public record.
Lawyers typically dominate litigation, which often ends in a settlement agreement during the
pretrial period of discovery and preparation.

Before going to court there are many methods to resolve the conflict but after it has been
presented in the court the judge takes the decision. At present the judge will be seeing the
agreements that both the companies have and will give a settlement statement that will be in
favour of both so that no company suffers much.

REFERENCES
1. https://www.pon.harvard.edu/daily/dispute-resolution/what-are-the-three-basic-types-
of-dispute-resolution-what-to-know-about-mediation-arbitration-and-litigation/
2. https://www.livemint.com/Companies/vC2Yhe8cMgWW88sqonNDlJ/Gas-dispute-RIL
-lawyer-crossexamines-former-NTPC-employee.html