[Assam] Gas deal between Ambanis and SC ruling

[Dilip and Dil Deka]

If you were following the Ambani battle via the Indian news media and got lost in trying to understand it (just like me), the following article published in a Houston O&G newsletter will help.
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India Court Ruling Could Affect Energy Investments
by Amol Sharma   Dow Jones Newswires
May 07, 2010







 

 

 

 
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NEW DELHI (Dow Jones Newswires), May 7, 2010 
India's Supreme Court handed a significant victory Friday to billionaire businessman Mukesh Ambani over his younger brother Anil in a closely watched case that could affect energy investments in the country.
The court ruled that Reliance Industries Ltd. (500325.BY), controlled by Mukesh, doesn't have to supply natural gas to Reliance Natural
Resources Ltd., controlled by Anil, according to the terms of a family agreement, because a government-set higher price for the gas takes precedence.
The decision overturns a lower court ruling and puts an end to a bitter, five-year saga that has pitted the two brothers from India's most powerful business family against one another. The case has also brought into focus the fact that despite the country's free-market
changes in recent years, the Indian government still plays a large role in key sectors of the economy like oil and gas.
The 2-1 verdict of the three-judge panel said the 2005 family pact between the brothers -- which split the multi-billion dollar Reliance
stable of companies between them - wasn't a legally binding document and would have to take a backseat to the government's higher rate for selling natural gas.
The upshot: Anil Ambani will have to renegotiate a contract with Reliance Industries for gas to feed his power plant projects and will
likely wind up paying 80% more than he previously envisioned. Reliance Industries will boost already-solid profits from its natural gas
field. The government, meanwhile, will earn billions more in royalties from gas produced off India's eastern coast.
In a brief statement after the ruling, Anil Ambani said he wouldn't file a petition for the court to review its decision. He said his company looks forward to "expeditious and successful renegotiations" with Reliance Industries and is "committed to emerging as India's largest power producer."
Reliance Industries Executive Director P.M.S. Prasad described the ruling to reporters as "good news."
The Ambani dispute has been closely watched in India, not just because of the significant business issues at stake, but because of the
soap-opera-like nature of their fraternal duel. Even as they sparred in court -- and occasionally through barbs in public -- the brothers
have lived on different floors of the same Mumbai skyscraper, along with their mother and families.
The fight over gas cast a shadow over the Indian oil and gas sector. "The country was held to ransom over this -- so much wasn't able to move forward in the industry while this was going on," said Anurag Agarwal, a professor at the Indian Institute of Management at
Ahmedabad. He said the case showed that in India, "the private sector is allowed to do a lot of things, but not at the cost of the government's sovereignty over key resources."
Reliance was founded in 1973 by Dhirubhai Ambani, a former gas-station attendant who rose to become a mogul with a conglomerate spanning petroleum, textiles, petrochemicals, and cellphones. He died in 2002, and within a few years, his sons were dueling over how to run the business. In 2005, they divided it in two, with Mukesh Ambani receiving the flagship textile and energy firm, Reliance Industries, while Anil Ambani took over telecommunications, financial services, media and power.
The men cut very different figures. Mukesh Ambani, 53, is India's richest man, with an estimated net worth of $29 billion. But he generally stays away from the spotlight. He has used his background in chemical engineering to expand Reliance Industries into unflashy but profitable sectors like petrochemicals and plastics. With $44.6 billion in annual revenues, it is now India's largest private-sector firm.
Anil Ambani, 50, has a net worth of $13.7 billion, controls consumer businesses, including India's second-largest mobile phone company. He has shown a penchant for higher-profile deal-making, most notably through filmmaking pacts with Hollywood heavyweights like Brad Pitt, George Clooney and Steven Spielberg's DreamWorks studio. He's married to a former Bollywood film actress and routinely jogs along Mumbai's waterfront.
Expanding into power infrastructure, which India badly needs because of electricity shortages, has been one of Anil Ambani's top
priorities. In the 2005 family pact, he was promised natural gas from Reliance Industries at $2.34 per million British thermal units, but
the Supreme Court's decision says that price is no longer valid.
The court ordered the companies to negotiate a contract within six weeks according to the higher government price, $4.2 per million Btu. That will increase the cost of the younger Mr. Ambani's gas-powered power projects, including a 7,480-megawatt one outside New Delhi.
Shares of Reliance Power, the firm Anil Ambani set up to house his power-generation assets, fell 9% Friday on the Bombay Stock Exchange to close at 140.10 rupees. Shares of Reliance Natural Resources, who main role is gas procurement and distribution, fell 23%. Reliance Industries shares closed 2.3% higher.
The government emerged a clear winner from the court's decision. It affirms that the government controls not only pricing but distribution of gas, so that it can direct it to sectors deemed a high priority, such as fertilizer and power.
R.S. Pandey, a former Indian petroleum secretary, said the decision won't put an undue burden on the companies that explore Indian oil and gas. "It's about balancing the rights of the contractors with the needs of the Indian government to develop its industries appropriately," he said.
But Deepak Mahurkar, associate director of the oil and gas practice at PricewaterhouseCoopers, said companies looking to enter the Indian oil and gas market will likely take into account the government's aggressive stance.
"Those who are risk averse will stay away; those who are risk takers will come to India," Mr. Mahurkar said.