Reliance Industries wins gas ruling

NEW DELHI Fri May 7, 2010 5:33pm IST

Mukesh Ambani (L), chief of India's Reliance Industries, and Anil Ambani, chairman of Reliance Communications, are pictured in this combination image of file photos. REUTERS/Staff Photographer

Mukesh Ambani (L), chief of India's Reliance Industries, and Anil Ambani, chairman of Reliance Communications, are pictured in this combination image of file photos.

Credit: Reuters/Staff Photographer

Related Topics

NEW DELHI (Reuters) - Mukesh Ambani, India's richest man, scored a win against his estranged brother Anil on Friday when the Supreme Court ruled they must renegotiate a deal over the country's largest gas field, effectively giving the government control over gas prices.

The feud between Mukesh and Anil Ambani has raised concerns about the influence of big business on government policy, and the ruling by a three-judge panel is expected to have far-reaching implications on energy policy in Asia's third-largest economy.

"It has brought more clarity as far as policy is concerned that the government is the owner of the gas and has the power to decide prices," said S.C. Tripathi, former secretary at the Petroleum Ministry.

"This makes government's role more predominant, but votaries (those in favour) of economic liberalisation may consider this a step backward."

The court ordered the brothers -- who have a combined fortune of around $43 billion -- to renegotiate within six weeks a private natural gas supply contract between Mukesh's Reliance Industries (RIL) and the younger Anil's Reliance Natural Resources (RNRL).

Anil, wearing a pink shirt and dark trousers, was in the packed courtroom to hear the ruling, but Mukesh did not attend.

Both live in Mumbai but are no longer on speaking terms.

Shares in the two companies gyrated wildly ahead of and after the verdict.

Reliance Industries, India's largest listed company, gained nearly 5 percent at one point and closed up 2.3 percent, while RNRL shares lost more than a quarter of their value, dropping to a 13-month low and closed almost 23 percent lower. Other firms owned by Anil also fell.

Reliance Industries will benefit from the ruling because it will double the price they can charge for a third of their total output at the deep sea Krishna Godavari field off India's eastern coast. For Reliance Natural it will have the adverse effect and may force Anil to scale down his power plant expansion ambitions due to expected lower margins.

The two brothers inherited their business empires from their father Dhirubhai Ambani in 2005, with Mukesh, 53, getting the jewel -- Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil, 50, got the telecoms, power and financial services businesses.

"There will be a severe impact on RNRL profits in the June quarter as they are only in the business of gas distribution. Anil Ambani will have to think of other business propositions," said R.K. Gupta, managing director at Taurus Mutual Fund.

"(The ruling) is positive not only for RIL, but also for Indian capital markets."


India's petroleum minister Murli Deora welcomed the ruling.

The gas row involves terms of the 2005 agreement under which Reliance Industries was to supply RNRL with 28 million standard cubic metres a day (mmscmd) of gas for 17 years at a rate far below the government-set price.

The brothers signed up to that deal, but Mukesh, the world's fourth-richest man who is splashing out more than $1 billion on a 27-storey home in Mumbai, later said it was subject to government approval.

Anil disagreed and took out front-page advertisements in major newspapers accusing the government of siding with Reliance Industries, India's largest-listed company with a market value of about $74 billion.

Giving the government control over gas and oil prices will allow it to raise more in royalties as it will get a slice of producers' sales.

Ironically a private spat between two brothers, which led all the way to the Supreme Court, has unexpectedly allowed the government to assert its influence over energy supplies. The Ambanis' influence on pricing was seen as obstructing this.

"The implications of this are that the consumer should not be at the mercy of individual negotiations," N. Bhaskara Rao of the Centre for Media Studies said. "Corporate games can't dictate public utilities."

The Krishna Godavari basin, operated by Reliance Industries, is a find that could nearly double India's gas output when production is at full throttle at 80 mmscmd.

Under the 2005 deal, Reliance Industries agreed to supply RNRL's power plants with gas at almost half the government-set rate of $4.2 per million metric British thermal unit (mmBtu).

"This is a major hit (for RNRL) and even their power company that was dependent on this gas for their projects, their costs will have to be repriced tremendously," said Neeraj Dewan, director of Quantum Securities in New Delhi.

Energy-hungry India, which wants to reduce its dependence on foreign oil and become a new frontier for oil and gas exploration, has showcased the Krishna Godavari discovery to attract foreign investors.

But analysts have warned that the Ambani dispute was putting off foreign investors, with government interference in pricing and marketing of gas raising the investment risk in a politically sensitive resource.

According to Forbes magazine, Mukesh Ambani is worth $29 billion, while Anil ranks as the world's 36th richest, worth $13.7 billion.

(Additional reporting by Himangshu Watts and Matthias Williams; Writing by Pratish Narayanan and Paul de Bendern; Editing by Ian Geoghegan and Lincoln Feast)

(For more business news on Reuters Money visit

(For Quotes and Interactive Charts of Reliance Industries Ltd here)

(For Quotes and Interactive Charts of Reliance Natural click here)


Reuters Showcase

Auto Sector

Auto Sector

Ford aims to triple exports from India with $1 billion plant  Full Article 

Micromax Stake

Micromax Stake

SoftBank-led group in talks to buy stake in Micromax - sources  Full Article 

Airwaves Auction

Airwaves Auction

Top three mobile operators spend $13.6 bln in airwaves auction  Full Article 

Insurance Sector

Insurance Sector

Australia's IAG to up stake in joint venture with SBI  Full Article 

Accenture Results

Accenture Results

Accenture raises revenue growth forecast for second time  Full Article 

GAIL's Plans

GAIL's Plans

GAIL seeking 7 LNG cargoes from Oct. 2015-Dec. 2016 - tender document.  Full Article 

Eyeing Pininfarina

Eyeing Pininfarina

Pininfarina confirms Mahindra interest, says no deal yet  Full Article 

SH Kelkar IPO

SH Kelkar IPO

SH Kelkar files prospectus for IPO, seen at around $100 mln  Full Article 

Australia Beat India

Australia Beat India

Smith shines as Australia down India to reach final  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage