Crash Of The Titans

Just like elder brother Mukesh Ambani, Anil Ambani started off on the solid ground prepared by their father Dhirubhai. However, hardly has any other family business seen such sharply contrasted trajectories as theirs. How did Anil Ambani lose the advantage? Nandini Vijayaraghavan traces the journeys of four well-known entrepreneurs whose businesses took off energetically but failed to retain the momentum and ended up struggling for survival

The 2006 terms of settlement agreement between the brothers resulted in RIL retaining natural gas exploration and extraction from the KG-D6 gas fields located on India’s western coastline, while the ADAG company, R-Power’s core business, was to develop, construct and operate power projects. In 2008, R-Power’s twelve power plants, including two gas-fired power plants at Dadri and Shahpur, were at various stages of development. The 2006 settlement included an agreement that delineated the terms and conditions for RIL supplying natural gas to ADAG’s gas-fired plants at Dadri and Shahpur. As mentioned earlier, R-Power was solely dependent on RIL for natural gas supplies.

The dispute this time was over the price at which RIL ought to supply natural gas to the ADAG company, Reliance Natural Resources Limited (RNRL), whose core business was sourcing, supplying and transporting gas, coal and liquid fuels. RNRL opined that the applicable price was $2.34 per mmBtu (million metric British thermal unit), which, according to Anil, was the price approved by ‘RIL’s board of directors nearly five years ago, and has been duly recorded in the commercial agreements signed by RIL’. This was also the price at which RIL had offered to sell gas to the government-owned National Thermal Power Corporation (NTPC) years ago, a deal that was subject to long-drawn litigation and never implemented.

RIL countered that the applicable price was stipulated in the production sharing contract (PSC) it had signed with the government and was 80 per cent higher at $4.21 per mmBtu.

In November 2006, RNRL filed a case against RIL in the Bombay High Court. The high-decibel litigation raged for seven months. On 15 June 2009, the Bombay High Court ruled that RIL’s board was fully aware of the settlement agreement, which was binding on both RIL and RNRL. RIL had earlier contended that the settlement agreement related to the Ambani family and had no place in the corporate domain. Further, RIL was contractually obliged to supply ADAG 28 mscmd (million standard cubic meters per day) natural gas plus the allocation to NTPC, should RIL’s contract with NTPC not materialize or was cancelled.

The verdict stated that RIL’s natural gas allocation to ADAG was independent of the PSC it had executed with the government, and that RIL would have to bear the cost of supplying natural gas to ADAG. Most damagingly, the judgement stated that ‘there is no specific provision under the PSC to prevent the contractor from selling the gas at a price lower than the price fixed by the government for valuation of gas to the extent of its share’. The court directed RIL and RNRL to enter into a gas supply agreement within a month.

Anil had won the first battle, but RIL announced its intention to appeal to the Supreme Court against the verdict.

Ad Blitzkrieg

Anil then launched a media offensive. A series of five advertisements were ‘issued in the public and national interest on behalf of eight million shareholders of Reliance Anil Dhirubhai Ambani Group, the largest shareholder family in the world’. These advertisements were published in major Indian newspapers.

The first advertisement questioned why NTPC must purchase natural gas from RIL at a price that was 80 per cent more than what was offered by RIL to NTPC. The second advertisement alleged that the petroleum ministry had approved the four-fold hike in RIL’s project cost, resulting in a Rs.30,000-crore ($6.20 billion) loss to the exchequer. The third advertisement questioned why RIL was allowed to hike its natural gas price by 20 per cent during a year when international natural gas prices had crashed by 80 per cent. The penultimate advertisement alleged that RIL was operating at less than 40 per cent of its natural gas capacity and the petroleum ministry was abetting RIL by proclaiming a scarcity, thereby enabling RIL to earn windfall gains at the expense of the government. The final advertisement accused the petroleum ministry of intervening in a commercial dispute over gas supplies between two corporates, and of supporting RIL.

All these advertisements ended with the question ‘Is this in public or national interest?’

The government too stepped into the fray by observing that natural gas was a national resource, the transaction terms of which could not be determined by a private agreement.

Meanwhile, Anil, after undertaking a pilgrimage to temples in the Himalayas, performed a volte-face and expressed his fervent desire to end the deadlock. RIL, while welcoming the move, stated that the matter was subjudice and hoped ‘any overtures for rapprochement are in no way related to the ongoing hearing of the case’.

Supreme Court Verdict

A three-member bench of the apex court, including the then chief justice of India (CJI), K.G. Balakrishnan, began hearing the case on 20 October 2009.



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