Gail Told To Give Up Spie-Capag Claim

The government has asked Gas Authority of India Ltd (GAIL) to give up its $58.5 million claim on the Spie Capag-led French consortium, which had been awarded the contract for laying the HBJ pipeline, and pay the consortium $71.11 million in damages.

The Union cabinet has already approved the proposal and sent it to GAIL for ratification by its board.

The $585 million HBJ pipeline project was a turnkey contract and work on it had to be completed within a specific time-frame. The contract did not have a provision for cost escalation.

GAIL had earlier won many a legal battle against the French consortium, including one in 1991 when a Paris court had allowed the public sector company to encash Spie Capags bank guarantees worth Rs 120 crore.

The battle started in August 1988, when GAIL asked the consortium to pay damages equivalent to 10 per cent of the contract price of $585 million for delays in executing the project.

Spie Capag, on the other hand, claimed Rs 638.54 crore from GAIL for its failure to fulfil responsibilities in ensuring timely completion of the project. The French company later made an additional claim of $450 million. In March 1990, it moved the arbitration court of the International Chamber of Commerce, Paris.

However, GAIL obtained a stay against the arbitration proceedings from the Delhi High Court and invoked the contractors bank guarantee issued by Banque Indo-Suez. The bank, instead of honouring its commitment, alerted Spie Capag and the multinational promptly secured a stay from a Paris court.

In September 1991, the Paris court ordered Indo-Suez to pay the guarantee plus interest on it at the legal rate effective from August 20, 1990. The guarantee consisted of French Fr100.64 million and the equivalent in French Francs of the following three amounts: Yen1.77 billion, $7.22 million and Rs 21.13 crore.

However, following former Prime Minister P V Narasimha Raos visit to France, an inter-government committee consisting of three members from each country was set up to resolve the dispute. The committee was set up without the consent of GAIL. The company was not even informed about it.

It was all along expected that the committees award would go against GAIL, despite the company having a fool-proof case against Spie Capag. In the committee, a retired Indian bureaucrat was pitted against a former finance minister of France. Secondly, a junior government official, Rajiv Mahirshi, was deputed to plead GAILs case while keeping its chairman completely out of the picture.

The committees award against GAIL was accepted by the Indian government without a murmur. The cabinet approved the award without a proper discussion and sent it to GAIL for ratification.