In an interesting turn of events, the government will shortly move the Bombay high court requesting it to vacate an interim stay order that restrained Reliance Industries [Get Quote] from selling gas from the Krishna-Godavari basin to companies other than Reliance Natural Resources Ltd [Get Quote] and state-owned NTPC, customers that had signed contracts for the fuel.

Sources familiar with the developments said the government will file an application in the Bombay High Court by the end of December or early January.

RIL on its part has already appealed against the order.

The court's interim order in May last year had directed RIL not to "create third party interest" for the disputed volume of 40 mscmd (million standard cubic metres per day) of gas from the K-G basin.

Explaining the government's move, sources said: "The government is a major stakeholder under the production-sharing contract, under which its entitlements can be as high as 85 per cent. A private dispute between two parties cannot threaten the interest of other stakeholders," the source added.

When contacted, Mukul Rohatgi, senior counsel for RNRL, said: "The interim order is very much in force and will last till the main judgement is pronounced. The substance of the order is that RIL shall not deal with that amount of gas to which RNRL is entitled."

RIL and RNRL had agreed on a price of $2.34 per million British thermal units (mBtu) in July, 2006, but RIL wanted to charge more after gas prices rose and costs climbed. The government in September 2007 set the price of gas from the K-G field for potential buyers at $4.2 per million mBtu. The price was linked to crude oil equal to or more than $60 a barrel.

The landed cost of the gas is expected to cost around $7 per mBtu, after adding transport and taxes. The alternative naphtha and imported gas cost above $10 per mBtu now, compared to $19 six weeks ago.

 The move to get the interim order vacated comes just a day after the government withdrew its affidavit that had made it a party to the case being fought by the Ambani brothers in the Bombay high court, saying it would expedite the two-year old case.

The affidavit, which the government submitted to the court on November 14, explained why the government wanted consumers to pay RIL $4.2 per unit of gas from the K-G basin. It added that the government had the right to reject the RIL-RNRL contract and that the higher gas price was binding.

RNRL had argued that both contentions in the affidavit were incorrect. RIL has set January as the date for producing gas from the K-G basin.  The firm aims to supply more than 40 per cent of India's requirement of oil and gas in about 18 months.