Mukesh Ambani-promoted Reliance Industries [Get Quote] will lose around $1 billion (Rs 4,300 crore) a year if it sells gas to the Anil Ambani's Reliance Natural Resources [Get Quote] at the agreed price of $2.34 per million British thermal unit (mBtu).

"If RIL is compelled to sell gas to RNRL at the said price, it will be paying a huge subsidy to the company," Harish Salve, senior counsel for RIL in Bombay high court, said on Thursday. Mukesh Ambani and brother Anil Ambani are slugging it out in court over the supply of natural gas from RIL's eastern offshore Krishna-Godavari gas fields.

The June 2005 agreement between the Ambani brothers stipulated that gas from RIL's KG basin fields would be allocated to Reliance Energy [Get Quote] for its upcoming power plants. As per the agreement - which has never been made a public document - Reliance Energy would have the right to 28 million cubic metres of gas from the KG basin.

RIL counsel Salve dubbed the agreement between the brothers as a 'ghost MoU' (as no one has seen it) and. A division bench comprising Justice J N Patel and K K Tated is hearing the gas dispute case between the billionaire brothers.

RIL has already invested Rs 30,000 crore (Rs 300 billion) for developing its assets in Krishna Godavari basin and wants to trade gas at the government-approved price of $4.2 per million mBtu, which has been arrived at through an arm's length formula.

Salve said, trading at this price will help RIL recover the costs and run the business profitably. Salve had told the court during earlier case hearings that the MoU cannot be taken as the basis for allocation of gas to RNRL. Salve will continue his arguments when the case comes up for hearing on August 5.

RIL fears that RNRL would trade the gas that it gets from RIL at a cheap price to a third party as it does not have its own power plant.

"RIL needs the government's prior approval regarding whom to sell the gas to," Salve contended. The lease given to RIL is for 25 years and ends in 2025. The gas reserve will run out within this time period. RIL is likely to recover its costs towards the project within three to four years, Salve added.

Salve will continue his arguments when the case comes up for hearing on August 5.