Mumbai: Shares of Reliance Industries Ltd fell after billionaire Chairman Mukesh Ambani was ordered by a court to sell gas to younger brother Anil at below-market prices, reviving a family feud that split India’s most valuable group.
The Mumbai High Court on 4 May ordered Reliance Industries, India’s largest company by market value, to honour a contract to supply gas to Reliance Natural Resources Ltd., controlled by Anil, from its field off the eastern coast of India.
The brothers’ wealth has increased to $38 billion in the past year since they divided the Reliance group, with Mukesh controlling oil and gas exploration and refining and Anil running power, communications and media assets. Mukesh signed an agreement to sell gas from his Krishna Godavari fields to Anil’s power plant being built in northern India.
“This dispute is about the two brothers trying to maximize returns for their investors,” said R.K. Gupta, who manages the equivalent of $70 million of stocks at Credit Capital Asset Management in New Delhi. “The order may not be sustainable because prices have gone up and even the government does not want Reliance to sell the gas so cheap.”
Reliance Industries wants to charge more for the gas as prices have risen to a record and costs for hiring rigs, buying pipelines and construction material have surged. Reliance Industries on Nov. 1 said the cost of developing the fields doubled to $5.2 billion. Potential output also doubled to 80 million cubic meters a day, equal to India’s current production.
Mumbai-based Reliance Industries on 3 May said it will appeal the ruling. Spokesman Tushar Pania declined to comment on 4 May. Venkatesh Somayaji, spokesman for Anil Ambani’s Reliance Energy declined to comment.
Reliance Natural Resources in November filed a suit against Reliance Industries for breaching a December 2005 agreement to supply gas to a power project in north India.
Reliance Industries agreed to sell 28 million cubic meters of gas a day to Reliance Natural Resources, the Business Standard newspaper reported on Feb. 5, 2006. The gas was to be sold at $2.34 per million British Thermal Units, the Press Trust of India reported July 26.
India’s Oil Ministry on July 26 asked Reliance Industries to raise the price of the natural gas it plans to sell to Reliance Natural Resources. Selling gas at prices lower than what other private oil companies charge in India will reduce the royalty that the government will earn, a statement issued by the Oil Ministry, which is party to the production contract, said.
Gas produced by non-state-run companies is sold in India at $4.75 per million BTU, R.S. Sharma, chairman, Oil & Natural Gas Corp., the nation’s largest explorer, said on July 7.
NTPC Ltd., India’s biggest power generator, filed a suit against Reliance Industries in December 2005 to enforce a gas- supply contract.
NTPC asked the Mumbai High Court to prevent Reliance from selling the fuel to any other user until the contract is fulfilled. The utility needs the gas to fire the 2,600 megawatts of capacity it plans to add at two plants in western Gujarat state by 2007. Reliance won a contract to sell 3 million metric tons of gas at $2.97 per million British thermal units.
Reliance Industries fell 2.5 percent to 1,582.55 rupees apiece at the 3:30 p.m. close on the Bombay Stock Exchange. Reliance Natural Resources rose 2.5 percent to 26.95 rupees and Reliance Energy gained 0.6 percent to 515.7 rupees.