Reliance gas dispute: "Three" losers in the broken empire

Sunday, August 9, 2009

"You do not require an invitation to make profits", said Dhirubhai Ambani. Today, that is exactly why Mukhesh and Anil are fighting for - to make profits. Though Kokilaben Ambani was successful in placating her sons over Reliance empire sharing, her words no more appeal to Ambani brothers. They only believe in "making profits", but both the brothers, on their way of making profits, have forgotten the larger public interest which is at stake due to their hostility. More over, it is not just theAmbani brothers who share the blame, but lack of sound policy from government on natural gas has made the situation worse.

Genesis of this problem
The court case between (Mukhesh's) RIL and (Anil's) RNRL are primarily about pricing and utilisation. The government run NTPC too has it's stake in the outcome. The genesis of this problem "can be traced back to Ministry of Petroleum and Natural Gas's (MOPNG) failure to act decisively at the beginning. First, the ministry was a mute spectator as NTPC issued it's global tender to buy 12 mmscmd (Million Metric Standard Cubic Meter Per Day) of gas and RIL won the tender with a surprisingly low bid of $2.4/mmbtu (Million British thermal unit). The ministry continued to watch as RNRL (then a group company of RIL, before split, now with Anil) cited the NTPC auction as reference and signed an in-house agreement with RIL (now with Mukhesh). The agreement was for 28 mmscmd for the same price, i.e. $2.4/mmbtu. So clearly, more than twice the quantity promised to NTPC! [Data: EPW, July 25, 2009 issue]."

At that time, reliance empire was not yet divided. Ministry of Petroleum and Natural Gas was not interested to intervene then. Now, after fresh discovery of natural gas resources in KrishnaGodavari basin, government fixed the gas price at $4.21/mmbtu. Mukhesh wants Anil to pay $4.21/mmbtu sine the price has been increased by government. But Anil says Mukhesh is not honouring the agreement that enabled Anil to buy gas at $2.4/mmbtu from RIL . Bombay High Court asked both the brothers to go back to their mother and settle the matter peacefully. But, they didn't like high court's advise and both the brothers filed affidavit in Supreme Court asking for intervention.

Government's apathy towards stronger gas policy
The confrontation of Ambani brothers is not just a matter of settling gas price but it reflects the failure of government to lay down a clear cut policy on natural gas. The exploration, development and production of hydrocarbons is being governed by the New Exploration and Licencing Policy (NELP) since 1999. Where as, the (gas) pipelines and distribution of gas is being regulated by the Petroleum and Natural Gas Regulatory Board (PNGRB). The ministry of Petroleum and Natural Gas is responsible for laying down the policies on natural gas so that public interest is protected and monopoly over natural gas is (as far as possible) avoided. "There are examples of countries that have controlled market structures before opening up their gas sector", but in India the "regulator has no role in determining the price of the gas - instead the price is expected to be market-determined." More over, there have been serious concerns about transparency of exploration policy (NELP) contracts which are worth billions of dollars.

Neither the Directorate General of Hydrocarbon, nor Petroleum and Natural Gas Regulatory Board have sound a framework for natural gas policy. Ministry of Petroleum and Natural Gas is yet to play a big role in effectively regulating market structure on natural gas. "In contrast, Ministry has been silent about the developing market structure and has so far been passive. [EPW, July 25, 2009 issue]."

Oligopoly in gas sector
The exploration and production is dominated by only two players, ONGC and RIL. It's important to note that, RIL is not only the major player in the production, transmission and distribution but also a potentially big consumer of gas with its own interests in petrochemicals. The ministry needs to step in and create a healthy environment with its revised gas policy so that public interest is protected when there are issues like the one betweenAmbani brothers.

Three way struggle
Now that the issue has been taken up by Supreme court, it is expected to take a "broader perspective of the case and could consider the national significance of D6 gas project, rather than focusing only on the terms of the RIL-RNRL gas sales agreement." It is possible that both Mukhesh and Anil could end up loosing something from their side to settle the matter. Because, "gas does not belong to either Mukesh or Anil Ambani. It belongs to the government." "If Anil's RNRL is able to keep the government out of this dispute or even neutralize its stance, it will be quite helpful for them." That may not be possible because government/NTPC too has some stake in the matter. More over Mukhesh is "trying to portray the dispute as one between RNRL and the government rather than one between RIL and RNRL" due to government's decision on the gas price at $4.21. So, there is a three way struggle between Mukhesh, Anil and the government. There is no doubt that in apex court's verdict, government's apathy towards making sound policy framework on natural gas will be exposed and if there are going to be some radical changes in government's policies on natural gas in the near future, it shouldn't surprise anyone.

Ambanis conviction to uphold their father's values
Apart from this pricing issue, Ambani brothers have a long way to go. Handing over the empire to her sons, Kokilaben Ambani had said, "I am confident that both Mukesh and Anil, will resolutely uphold the values of their father and work towards protecting and enhancing value for over three million shareholders of the Reliance Group, which has been the foundational principle on which my husband built India's largest private sector enterprise." However, the way things are going, the questions are being raised over their conviction to uphold the values set by their father.

1 comment:

Anonymous said...

I think it's wonderful these tycoons are doing well but very sad the rest of the world is literally starving to death!! What a Blessing it would be if they would re-distribute a BIT of their wealth (if only the interest) and help those who are truly in need.
The world would be a better place for it and what a gesture on their part for man-kind...

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This work by Manjunath Singe is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 2.5 India License. The views and opinions expressed in this work are strictly those of the author and do not represent his employer's views in anyway.