Changing equations affecting Ambanis

The tectonic shift in political alignments brought on by the Left’s intransigence on the N-deal and Mayawati’s no-holds-barred targetting of the Samajwadi Party in Uttar Pradesh is having its greatest side-effect on the Ambani brothers’own fight for business supremacy.

Even before the change in political equations, the Ambani brothers had opened several fronts in what is probably the mother of all corporate battles. It will pale all the other battles the undivided Reliance group fought under the redoubtable Dhirubhai Ambani against Nusli Wadia of Bombay Dyeing, Kapal Mehra of Orkay Silk Mills, and several others.

At stake now are billions of dollars and the power that comes from being the unassailable numero uno in India Inc. But the fight, if it continues with gay abandon, has the power to derail or jeopardise the carefully laid out plans of the two Ambani brothers.

The biggest bones of contention are the gas gushers in the Krishna-Godavari basin and the three special economic zones being set up by Mukesh Ambani. Also at stake are Anil Ambani’s 7,450mw power project in Dadri, Uttar Pradesh, and the probable formation of an RCom-MTN telecom group that could stretch a telecom footprint from the Cape of Good Hope to the Himalayas.

The key to the Ambani fight depends on interpretation of a series of agreements entered into in June, 2005, when grand matriarch Kokilaben Ambani brought peace (temporarily, in hindsight) by making the two brothers sign them. At hand to help the two brothers divvy up the empire were KV Kamath, the ICICI Bank honcho, and a group of advisers from both sides. While very little is known about the main agreement, subsequent ones drawn up on the basis of the first have become the genesis of all disputes.

When Reliance Natural Resources Ltd (RNRL) was created out of Reliance Industries Limited (RIL) and spun off into Anil Ambani’s ADAG, a gas sales purchase agreement (GSPA) was signed in addition to a non-competition pact for 15 years and a trademark management agreement. These were signed by mother firm RIL and the newly-created companies under ADAG.

Flashpoint 1: Gas at the heart of the dispute
The de-merger agreement between the two brothers specified that gas will be made available at the same price as to the government-owned NTPC. This became a point of contention, with the petroleum ministry under Murli Deora deciding it will lose revenue if gas is sold to RNRL at low prices when global prices have shot through the roof.

The Krishna-Godavari gas basin is the crucial feedstock for Reliance Power, to fuel its 7,450mw Dadri power project. The stakes are very high as the agreement specifies ADAG will lift gas at $2.34 per mmbtu (million metric British thermal units) for a period of 17 years. It has two parts, with 28 mmscmd (million metric standard cubic metres per day) reserved for RNRL, an ADAG entity, with 12 mmscmd accruing in the event of RIL’s contract with NTPC not going through. RIL favours the petroleum ministry’s point of view, but ADAG has contested it in court.

Flashpoint 2: Captive power at Mukesh’s SEZ
The family agreement signed by the two brothers specified the sectors where the brothers would have exclusive rights to operate for 15 years. The petroleum and petrochemicals sector thus, was the preserve of elder brother Mukesh, while power generation, financial services and telecom remained the exclusive turf of younger brother, Anil.

This was tested when Anil challenged Mukesh Ambani’s plan to set up captive power generation plants for the special economic zones that he is setting up in Maharashtra and Haryana.

In turn, Mukesh’s RIL recently fired a salvo saying that any arrangement with the MTN group of South Africa, which would involve a sale of Reliance Communications (RCom) shares by Anil to MTN, will first have to be offered to RIL. The non-compete agreement has inscribed the right for first refusal very clearly on this.

Flashpoint 3: Bandra-Kurla auditorium
A battle was also fought in the new business district of Bandra-Kurla in Mumbai. The two brothers made competing bids for a 7.5 hectare plot for a 2,000 seater auditorium. Mukesh won hands down, but later Anil found that the state government had increased the floor space index from one to four. Anil protested, but the case was rejected by the Bombay high court.

Flashpoint 4: Trans-harbour link, a lifeline for Mukesh’s SEZs
In a smart move, Anil bid very low to build a bridge to connect central Mumbai to Navi Mumbai, where Mukesh’s SEZs are located. The bid confounded everyone. While ADAG was chosen because it sought a recovery period of only 9 years and 11 months, Mukesh’s offer to recover the cost extended to 75 years. The state government saw through the game and stepped in to build the bridge itself, much to the relief of Mukesh as otherwise Anil would have had a stranglehold over the SEZ’s connectivity to the commercial capital.

Flashpoint 5: Who owns the airport land?
Before the demerger of Reliance Industries, the Airports Authority of India had an agreement with Reliance Transport and Travels Ltd, an RIL subsidiary. The subsidiary later was spun into the ADAG fold. But the AAI was allowed by the court to lease the land to RIL, and it was hotly contested by ADAG. The courts will eventually decide the ownership issue.

Other flashpoints: Even loose change
- Dues owed: About Rs58 crore is allegedly owed by Madhuban Merchandise, a Mukesh firm, to Anil’s Reliance Infocomm Infrastructure. The case is now in the supreme court.

- Real Estate: The brothers are yet to vacate real estate pieces belonging to each other. In contention are at least three properties: Maker IV, Reliance Centre and the Dhirubhai Ambani Knowledge Centre in Navi Mumbai. This has only added to the tensions.