Mukesh Ambani, the chairman of Reliance Industries Limited (RIL), and his younger brother Anil Ambani, the head of the Reliance Anil D. Ambani Group (RADAG) of companies, are squabbling over power, some 14 months after signing an agreement that ended a bitter dispute and effectively carved out the business empire founded by their father, Dhirubhai Ambani.
The issue involves power plants RIL wants to set up in the special economic zones (SEZs) it is developing in Maharashtra and Haryana. But Reliance Energy Ltd, part of RADAG, claims that this is in violation of the January 2006 agreement that lists the areas in which companies belonging to the two groups will not compete with each other. RIL says it isn’t violating the agreement, which makes a provision for captive power units such as the ones it plans to set up.
In recent letters to Maharashtra chief minister Vilasrao Deshmukh and Union minister for environment and forests A. Raja, RADAG company Reliance Energy Ltd (REL) wrote that “RIL can only set up captive power projects... Any surplus power from the captive projects would first have to be offered to Reliance Anil D. Ambani Group.”
Neither Deshmukh nor Raja has the powers to stop a private sector firm from building a power project. But all power projects require environmental clearances that come from Raja’s ministry, and the Maharashtra State Electricity Board would be an automatic customer for any surplus power the proposed RIL plant wants to sell. But REL’s letter to Deshmukh clearly states that RIL cannot sell surplus power “to state utilities.”
A senior RIL executive, who spoke on the condition of anonymity, denied that the company’s plans violate the January 2006 agreement in proposing the power plants in SEZs. He quoted from part of the agreement between both companies, which is also available on the RIL website, and said that the company could sell any surplus power from a captive plant to anyone “after first offering it to” RADAG.
“In legal parlance, anything less than 50% is surplus,” the executive added.
That would mean that RIL can sell power from its captive plants, provided it uses just over half of the total amount generated, and after RADAG exercises its right of first refusal. It is unclear what the exact terms of that right of first refusal are. A spokesperson for REL declined to comment.
“The non-compete agreement kicks in for a 10-year period beginning 2006,” said the executive at RIL. Any captive plant that RIL sets up within this period can compete with RADAG’s Reliance Energy after 10 years.
RIL’s recent discoveries of large reserves of natural gas in the Krishna-Godavari basin give it an assured supply of fuel for its power projects. Gas is cheaper than naphtha and cleaner than coal, the two other preferred fuels for power generation units.
RIL had initially planned to set up one gas-based power plant each in its proposed SEZs in Maharashtra and Haryana.
Mukesh Ambani offered to set up another one in Maharashtra after a meeting with Deshmukh. The state, home to the country’s commercial capital Mumbai, faces a severe shortage of power.
Meanwhile, Reliance Energy has offered to set up and maintain the power plants and electricity distribution facilities at RIL’s special economic zones.