India’s Natural Gas Caught in $17B Family Feud

Indias Natural Gas Caught in $17B Family Feud

— An ashen Anil Ambani, one of the world’s richest men, stood before a clutter of television cameras, close to tears.

“There is only pain, hurt and emotion,” he said, his voice catching.

There is also, by some calculations, at least $17 billion at stake.
Anil and his brother Mukesh — ranked by Forbes magazine as the world’s 34th and 7th richest individuals — are locked in an increasingly bitter fight over India’s biggest natural gas deposit.

The battle between the famous sons of one of India’s first great capitalists has quickly become the nation’s favorite family feud. It has also exposed flaws in the government’s management of the crucial energy sector and the cozy relationship between officials and one of India’s wealthiest families.
The case is scheduled to go before India’s Supreme Court on Oct. 20.
Some policymakers say the dispute, along with the global recession, has further discouraged the investment so badly needed to help develop gas and oil resources for this energy-hungry nation of 1.2 billion people.
After trying to recruit foreign investors from Houston to Perth, the government got bids last week for just 36 of 70 oil and gas blocks on offer. Only seven foreign companies participated.
Meanwhile, the bickering brothers have made it harder for energy to reach people in a country where more than 450 million struggle by on less than $1.25 a day.
Each claims the legal battle is preventing their companies from selling gas or building new power plants.
At issue is the price of natural gas from India’s largest known deposit: The Krishna Godavari basin, off the eastern coast, which would double the amount of natural gas produced in India.
A family agreement signed by the brothers in 2005, after their father, Dhirubhai Ambani, died without leaving a will, says that Mukesh’s company, Reliance Industries, will sell Anil’s company, Reliance Natural Resources, at least a third of the basin’s projected output. The price agreed back then is well below what the gas can be sold for now.
Both Reliance Industries and government officials now argue that the 2005 agreement is void because the government never approved the below-market price.
Anil counters that Reliance Industries is trying to break a binding contract, abetted by Mukesh’s allies in the Ministry of Petroleum, which is headed by an old friend of their father.
In June, the Bombay High Court upheld the substance of the family agreement. That ruling is being appealed in the Supreme Court.
Mukesh’s company is counting on making $11.5 billion from the gas if he’s allowed to increase the price. But if Anil gets his way, that anticipated profit could turn into a $5.4 billion loss.
For Anil, the cost of losing the case could be even higher. Analysts, and Anil himself, say the future of Reliance Natural Resources hangs in the balance. The gas supply contract, he told shareholders in July, is “our company’s primary asset and contributes most of its value.”
Angel Broking analyst Deepak Pareek calculated the company’s stock price would likely plunge by 76 percent if Anil loses the case.
The pressure has compelled Anil to break the cozy silence that typically clings to power in India.
He’s taken on not just his brother, but the Indian government itself, issuing a weeklong series of front page newspaper advertisements lambasting the government for allowing his brother to rake in “super-normal” profits.
“RIL has tried every trick in the book — and apparently several outside the book — to back out of its solemn, legal and contractual obligations,” Anil told his shareholders in July.
Broadening the attacks, Anil’s company in court documents accuses a top energy official, V.K. Sibal, of accepting favors — including apartments and home appliances for his daughters. The daughters allegedly stayed in “posh guest houses” owned by Mukesh’s company for several months during the time Sibal decided to approve new capital spending rules that would increase RIL’s profits.
Sibal, now reportedly under investigation, denies those charges. “I fear a threat to my life,” he said in a letter leaked to the press.
Reliance Industries and the government have issued sober denials of Anil’s other allegations too.
Last week, Anil made a pilgrimage to two holy shrines in the Himalayas “seeking divine inspiration and blessings, in trying to heal the wounds,” as he said in a widely released statement. He came home convinced he and his brother could negotiate a settlement.
Mukesh’s company welcomed the overture, but said the dispute is “not merely a family matter” and should be resolved in court.
The litigation has put the government in a delicate position.
It is trying to strike a balance between retaining control of a valuable natural resource to be used in the national interest and not appearing to undermine the sanctity of a private business contract.
That may be an impossible juggling act and raises a bigger question of how the government can fix the weaknesses the dispute has highlighted.
India’s natural gas sector — from exploration to pipelines — is dominated by just a few players owned either by the state or the Ambanis. Besides owning energy companies, the government through its Petroleum Ministry sets energy policy and the prices that producers can sell oil and gas for.
Some say that concentration of power combined with a lack of transparency is a recipe for disaster.
Harinder Kohli, chief executive of Washington-based emerging markets consultancy Centennial Group, said an independent regulator should be quickly set up to vet wholesale gas prices so the government isn’t continually entangled in accusations of favoritism and corruption.
“There is too much arbitrary power,” he said. “That corrupts. There is a bigger lesson, irrespective of which brother is right: This is not the way the game should be played.”
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