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RNRL was created five years ago to buy natural gas from Reliance Industries (RIL) at a cheap rate and transmit it to RPower. But the government policy now in place, envisages no role for such a shell gas company. Instead only actual users of gas, such as power and fertilizer companies, are entitled to the fuel. In May 2010, the Supreme Court ruled that the government had the right both to determine the price of gas as well as fix the user. On 25 June 2010, RNRL and RIL signed a revised gas supply agreement in line with the apex court's verdict to resolve a dispute that had been at the heart of the feud between the Ambani brothers.
"The merger will accelerate RPower's plans for setting up an 8,000 megawatt (MW) gas-fired power unit," ADAG said in the media statement. Post merger, RPower will have ownership of RNRL's share in four coal-bed methane blocks and an oil and gas block in Mizoram. RNRL's proposed shipping venture will also come in handy for R-Power because it will be able to use the vessels for captive usage. On the other hand, RNRL shareholders will benefit from RPower's generation portfolio of 37,000 MW and its coal reserves in India and abroad, the media statement added.
A regular supply of fuel is critical for RPower, as the company needs it to implement ambitious expansion plans. It is building seven coal-fired power plants two gas-fired units and seven hydroelectric projects. In total, it plans to build as much as of 37,000 mw of power generation capacity.
The exchange ratio is based on independent valuation by KPMG.
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