Mumbai: The Supreme Court on Friday backed billionaire Mukesh Ambani in a gas pricing dispute with his younger brother Anil -- a ruling that could have far-reaching implications on energy policy for Asia’s third-largest economy.
What does the verdict mean?
It gives the government control over pricing and marketing of a politically sensitive resource. The state-set price of $4.2 per million metric British thermal unit (mmBtu) will be binding. The price is unlikely to rise or fall because of the ruling.
For Mukesh Ambani-controlled Reliance Industries, India’s most valuable listed company, it will mean billions of dollars in potential profits on gas sales from the Krishna Godavari basin off the east coast, which it operates.
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The field is India’s biggest gas find and should nearly double the nation’s gas output when production is at full throttle at 80 million standard cubic metres a day (mmscmd).
Anil Ambani’s Reliance Natural Resources, which wanted Reliance Industries to honour a private deal to supply 28 mmscmd of gas for 17 years at $2.34, will have to renegotiate a new agreement at almost double the price.
This will inevitably impact plans for Anil Ambani Group’s power business, including projects being built by Reliance Power.
What does it mean for foreign investors?
Energy-hungry India wants to reduce its dependence on foreign oil and become a new frontier for oil and gas exploration, and has showcased the Krishna Godavari discovery to attract foreign investment.
Giving the government control over pricing could, however, put off overseas investors looking for more marketing freedom to pump in the billions of dollars needed for exploration.
Anil Ambani had earlier said the petroleum ministry’s efforts to control the pricing and sale of gas was the reason for a poor response to the government’s auction of oil and gas exploration blocks last year.
What is the outlook for shares?
Shares in Reliance Industries rose almost 5% after the ruling. Analysts see the stock, which has a market value of $74 billion, gaining about 10%. The shares had dropped 7% this year through Thursday, compared with a 2.7% fall on the main index.
Reliance Natural shares slumped more than 25% on worries it will not get access to relatively cheap gas, which could then be used to fuel projects by group companies. The shares had risen almost 10% since 27 April through Thursday amid growing speculation it could win.
Who are the Ambani brothers?
Mukesh, 53, is the world’s fourth-richest man, worth $29 billion, according to Forbes magazine. He controls India’s largest listed firm, Reliance Industries, which has interests in oil and gas exploration, petrochemicals, infrastructure and retail.
Anil, 50, is worth an estimated $13.7 billion. He received the telecom, power, and financial services interests of the Reliance empire after it was split in 2005 following the death of their father Dhirubhai Ambani, who built Reliance from scratch.
The Anil Dhirubhai Ambani Group includes India’s No.2 telecom firm, Reliance Communications, and Reliance Infrastructure. The brothers have squabbled frequently since the group’s split, before which Mukesh was chairman and managing director of Reliance Industries, and Anil vice-chairman. In 2008, Reliance Communications called off merger talks with South Africa’s MTN after Mukesh made a claim on the shares of Anil’s telecom firm.