Global Economics

Three Years After Split, Ambanis Keep Bickering


The most contentious issue is the sale of gas by Mukesh Ambani's Reliance Industries to his brother Anil's Reliance Energy

From aviation to gas, the sparring between the Ambani brothers shows no signs of fading. In fact, June 18 will mark the third anniversary of the family agreement between the two brothers. That agreement ended a bitter, year-long fight in India's first business family and appeared to pave the way for an amicable resolution of all issues. Three years later, very little seems to have changed. The bitterness continues and the disputes are endless.

While the controversy surrounding the MTN deal is the latest in the unabated acrimony, it is apparent that neither Mukesh nor Anil is in any perceptible hurry to smoke the peace pipe. Right from the time the demerger was announced in June 2005, the siblings have been at it. Interestingly, the issues that have become contentious have been varied and not necessarily restricted to their existing lines of businesses.

By all counts, the most controversial and contentious issue is the sale of gas by Mukesh Ambani's Reliance Industries (RIL) from its Krishna Godavari basin to fuel brother Anil's Reliance Energy's proposed 7,450 MW power plant in Dadri, UP. What makes the gas issue critical is that it goes to the core of the dispute: to the demerger agreement between the two entities.

The gas is important for Reliance Energy to fuel its 7,450 MW power project proposed to be set up at cost of over $8 billion. According to the agreement, Reliance Energy will require 40 mmscmd (million metric standard cubic metres per day) of gas at a cost of $2.34 per mmbtu (million metric British thermal unit) for a period of 17 years. This will be broadly broken up into 28 mmscmd initially, with another 12 mmscmd accruing in the event of RIL's contract with NTPC not going through.

As things stand, RIL has objected to the terms and conditions (which include price, duration and quantity) of this gas sales agreement. It has refused to supply gas to ADAG citing government disapproval of the price. ADAG has gone to court seeking directions to force RIL into complying with its portion of the agreement.

The fate of RIL's 80 mmscmd of gas production from the KG basin and that of Dadri power plant rest on the court case. In an interim order last year, the Bombay High Court has restrained RIL from selling the gas to any third party with the purpose of protecting the interests of R-ADAG.

The gas supply issue finds a place in the June 2005 family agreement between the brothers. The agreement was signed by Mukesh and Anil in their respective capacities as chairman and vice chairman of RIL in the merged Reliance entity. This broadly stated that both the groups were to enter into suitable arrangements as per a scheme called the 'demerger scheme', which was approved by a large number of RIL shareholders and the Bombay High Court in December 2005.

The basis of several disputes lies in the agreements reached between the siblings in early 2006: the gas sales purchase agreement (GSPA), the non-competition agreement (NCA) and the trademark management agreement (TMA). These were signed between RIL and what the documents describe as the 'resulting' companies of the Anil Dhirubhai Ambani Group (ADAG). Even at that time ADAG had reacted sharply to the agreements signed by RIL and the four ADAG companies. ADAG claims that both sets of entities were controlled by elder brother Mukesh and the agreements were tantamount to Mukesh signing agreements with himself. These agreements have now become the root cause of all disputes between the brothers. Sources close to Mukesh claims that Anil is being selective and that the younger brother often used the same agreements to thwart the elder brother's plans.

The NCA was in the limelight when Anil Ambani wrote to the Maharashtra chief minister in 2007 claiming that RIL could not set up power projects. He maintained that this business was exclusively reserved for ADAG. This was when the Mukesh Ambani group proposed to set up power projects in its proposed special economic zones (SEZs) in Haryana, Gujarat and Maharashtra. Now, it is Mukesh's turn to use the NCA, which is said to have incorporated a Right of First Refusal (RoFR) in case one of the groups decides to sell any of its business.

This came to the limelight in the wake of the proposed deal between ADAG's Reliance Communications (RCOM) and South African telco, MTN. The transaction, it is gathered, will result in Anil Ambani becoming the largest shareholder in MTN, after RCOM becomes MTN's subsidiary.

The story of the disputes to date between the Ambani brothers has various facets. The acquisition of a 7.5 hectare plot, for instance, in Mumbai's Bandra-Kurla Complex (BKC) saw the two brothers putting in separate bids. Eventually, Mukesh Ambani swung the deal. The plot was acquired for Rs 1,104 crore. The plan is to construct a convention centre, which would house a 2,000 seat auditorium. Soon after, the state government increased the Floor Space Index (FSI) from one to four. ADAG raised an objection to this on the grounds that this was done after the bid was announced. But this was rejected by the Bombay High Court.

The much touted Mumbai Trans Harbour Link project again saw the two groups fighting it out. While Mukesh clinched it initially, this was challenged by ADAG whose bid was rejected on the basis of financial parameters. The matter went to the Supreme Court, which upheld ADAG's appeal. While ADAG has emerged as the preferred bidder in the latest round of bidding, the government has referred the matter to the Maharashtra State Road Development Corporation (MSRDC) to determine the viability of the cost recovery aspect. ADAG's bid involves recovering the cost of the project over a period of 9 years and 11 months. This compares to brother Mukesh's offer to recover the cost over a period of 75 years.

The Trans Harbour Link envisages the development of a 22.5 km expressway with six lanes connecting Sewri in central Mumbai to Sheva in Navi Mumbai. Overall, the value of the project is expected to be well over Rs 6,000 crore.

While these are cases where the dispute between the Ambanis have largely been restricted to bids for upcoming projects, the story of the lease of land at Mumbai's Chhatrapati Shivaji International airport is rather different.

It actually goes back to the time before the demerger. The Airports Authority of India (AAI) allotted the plot in 2000 to Reliance Transport and Travels Limited (RTTL), which was a subsidiary of Reliance Industries. After the demerger, RTTL went Anil Ambani's way. In May this year, the court allowed AAI to lease the land to RIL, pending the final outcome of the suit. As things stand, the hearing for the case is scheduled for July 7, which really has to answer one question &mdash who is entitled to use this land?

The future could well see more disputes and more bids. Quite clearly, a lot will depend on the settlement agreement between the two and what the non-conflict agreement states. For instance, Mukesh Ambani's retail blueprint has outlined an investment of Rs 25,000 crore. This will go towards setting up stores in various formats and, over time, positioning it as entertainment centres for families. Indications are that this could well host multiplexes as well.

By contrast, brother Anil has spoken of his group becoming an entertainment conglomerate. Following the acquisition of a majority stake in Adlabs just after the demerger was made public, Anil has set up a music label, ventured into the home video business and got into the FM radio business. In the recent past, ADAG company, Big Entertainment has inked deals with eight Hollywood production houses. With both the brothers looking at entertainment as a big business foray, how the scenario plays out in this sphere will be interesting. Quite clearly, no script is ever perfect.


Later, Baby
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