New Delhi: The Supreme Court on Friday ruled in favour of billionaire businessman Mukesh Ambani in a long-running dispute with his brother over the country’s largest gas find, effectively giving the government control to set gas prices.
The feud between India’s richest brothers has raised concerns about the influence of big business on government policy, and the ruling by a three-judge panel is expected to have far-reaching implications on energy policy in Asia’s third-largest economy.
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“It has brought more clarity as far as policy is concerned that the government is the owner of the gas and has the power to decide prices,” said S C Tripathi, former secretary at the petroleum ministry.
“This makes government’s role more predominant, but votaries (those in favour) of economic liberalization may consider this a step backward.”
The court ordered the brothers -- who have a combined fortune of around $43 billion -- to renegotiate within six weeks a 2005 gas contract between Mukesh’s Reliance Industries and the younger Anil Ambani’s Reliance Natural Resources (RNRL).
Anil, wearing a pink shirt and dark trousers, was in the packed courtroom to hear the ruling, but Mukesh did not attend.
Shares in the two companies gyrated wildly as rumours about the judges’ ruling swept through the markets.
Reliance Industries gained nearly 5%, while RNRL shares lost more than a quarter of their value, dropping to a 13-month low of Rs50.
The two brothers inherited their business empires from their father Dhirubhai Ambani in 2005, with Mukesh, 53, getting the jewel -- Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and textiles. Anil, 50, got the telecom, power and financial services businesses.
“There will be a severe impact on RNRL profits in the June quarter as they are only in the business of gas distribution. Anil Ambani will have to think of other business propositions,” said R K Gupta, managing director at Taurus Mutual Fund.
“(The ruling) is positive not only for RIL, but also for Indian capital markets.”
Clarity on Pricing
The gas row involves terms of the 2005 agreement under which Reliance Industries was to supply RNRL with 28 million standard cubic metres a day (mmscmd) of gas for 17 years at a rate below the government-set price.
The brothers signed up to that deal, but Mukesh, the world’s fourth-richest man, later said it was subject to government approval.
Anil disagreed and took out front-page advertisements in major newspapers accusing the government of siding with Reliance Industries, India’s largest-listed company with a market value of about $74 billion.
Giving the government control over gas and oil prices will allow it to raise more in royalties as it will get a slice of producers’ sales. The government has wanted to assert its influence over energy supplies and the control the Ambani’s had on pricing was seen as obstructing this.
The row centres on the Krishna Godavari basin off the east coast, operated by Reliance Industries, and which is a find that could nearly double India’s gas output when production is at full throttle at 80 mmscmd.
Under the 2005 deal, Reliance Industries agreed to supply RNRL’s power plants with gas at almost half the government-set rate of $4.2 per million metric British thermal unit (mmBtu).
Energy-hungry India, which wants to reduce its dependence on foreign oil and become a new frontier for oil and gas exploration, has showcased the Krishna Godavari discovery to attract foreign investors.
But analysts have warned that the Ambani dispute was putting off foreign investors, with government interference in pricing and marketing of gas raising the investment risk in a politically sensitive resource.
According to Forbes magazine, Mukesh Ambani is worth $29 billion, while Anil ranks as the world’s 36th richest, worth $13.7 billion.