Tuesday, October 20, 2009


A three-member Supreme Court bench, headed by Chief Justice K.G. Balakrishnan, will on Tuesday commence the final hearing in the case between Mukesh Ambani-owned Reliance Industries Ltd (RIL) and Anil Ambani’s Reliance Natural Resources Ltd (RNRL) in the dispute over the supply of gas from RIL’s D6 block in the Krishna-Godavari (KG) basin. On Monday, the Union government, in a reply to RNRL’s contention, asserted its right to file a petition in the Supreme Court against the Bombay high court verdict of 15 June, claiming the high court verdict had adversely affected its sovereign rights over natural gas. The Bombay high court had ruled that RIL should honour a June 2005 family agreement to supply 28 million cu. m per day (mscmd) of gas at $2.34 per million British thermal unit (mmBtu) for 17 years to RNRL. While RNRL has sought the apex court’s intervention for the immediate supply of gas, RIL, in its affidavit, has opposed this, stating that the price is 44% lower than that mandated by the government and it cannot supply gas at a price not approved by the government and to a user not listed in the country’s gas utilization policy. 
Source: Mint research

Key milestones in the legal dispute:-
15 June: The Bombay high court rules in favour of Anil Ambani's RNRL, ruling that RIL should honour a June 2005 family agreement to supply 28 mscmd of gas from its KG basin fields at $2.34 per mmBtu for 17 years to RNRL.

3 July: RNRL appeals to the Supreme Court to restrain RIL from supplying natural gas up to 40 mscmd to any party other than itself and asks the court to give a specific direction to RIL to implement the family agreement for supply of gas.

4 July: RIL files a petition in the apex court against the Bombay HC order, claiming the high court erred in deciding the three terms—quantity, tenure and price—of gas supply to RNRL.

7 July: The Supreme Court refuses to stay the high court ruling and posted the matter for hearing on 20 July.

18 July: The government files a special leave petition in the apex court, asserting its sovereign rights over gas and stating that the KG basin gas is not a personal property of the Ambani brothers. It asks the court to declare the June 2005 family memorandum of understanding (MoU) as null and void.

20 July: The Supreme Court defers a hearing on the gas dispute until 1 September.

28 August:  The Supreme Court further defers the hearing to 20 October. 

1 September:The government files an amended petition in the Supreme Court asserting its sovereign rights over gas, but clarifying that it no longer wanted the family arrangement between the Ambani brothers to be declared null and void.

9 September:  RNRL files a detailed reply to RIL petition, alleging that Mukesh Ambani firm was changing its position on the MoU that had set the rules of the demerger of the Reliance businesses. It further stated that the MoU was not affected by the gas utilization of the country and RIL was wrongfully seeking to add government approval as a condition.

16 September: RNRL asks the Supreme Court to make state-run power utility NTPC a party in its legal dispute with RIL. 

18 September: RNRL urges the Supreme Court to dismiss the government petition, arguing that the Centre has no role in the legal spat over the KG basin gas between the Ambani brothers.

6 October: RIL, in its filings before the Supreme Court, challenges the Bombay high court verdict and presents new evidence such as minutes of board meetings, which seek to undermine RNRL’s claims. RIL also questions RNRL stand of seeking a majority share of KG D6 gas despite the fact that RNRL had not built any power plant to utilize the gas.

Billionaires at war: How Ambani dispute ups India's investment risks
Mumbai: The wrangle over an energy deal between billionaire Ambani brothers has highlighted the risks inherent in an economy dominated by big family businesses and spurred calls for the government to intervene.

The latest dispute between the feuding brothers could discourage investment in India's energy sector as the country scrambles to shore up its energy security.

It also tests governance standards for a nation that ranks a lowly 180 when it comes to enforcing contracts on the World Bank's index on ease of doing business. Only Benin ranks worse.

The near-three-year battle between India's top conglomerate Reliance Industries, headed by Mukesh Ambani, 52, and Reliance Natural Resources, led by estranged brother Anil, 50, will be heard in Supreme Court on July 20.

The two sides are fighting over terms of a gas-supply agreement struck when the Reliance empire was split in 2005. The Bombay High Court ruled last month that Reliance Industries should supply gas to Reliance Natural at nearly half the price it had set in an interim order in January.

The gas in dispute comes from the vast Krishna Godavari (KG) basin, and some in India have said terms of access to such a crucial resource in an energy-starved country should not be left in private hands.

"If a private MOU (memorandum of understanding) can involve something that belongs in the public domain, it gives the sense that large corporations can bend rules and influence policy -- that's surely got to be the biggest political risk," said Seema Desai, an analyst at risk consultancy Eurasia Group in London.
The government has largely been silent, which could make investors wary, said strategist Arun Kejriwal at KRIS Research.

"It sends a message that the law is different for different people. This is not trivial, it is a matter of national interest," said Kejriwal.

The chief minister of the state of Andhra Pradesh, where the KG basin is located, has also called for New Delhi to step in.

"The dispute over sharing of gas is not an issue to be settled by their mother. It is for the Centre (central government) to decide who should get the gas at what price," Y.S. Rajasekhar said on Sunday, according to the Times of India.

Family business

Big business families in India, as in many other countries, have long played an outsized role in the broader economy and have used political patronage to smooth their way. Some analysts say that too much is at stake now for the government to stay silent.

"The government's call is important ... the verdict could have an impact on the gas-allocation policy as it is likely to impact the flow of gas to priority sectors going ahead," Angel Broking wrote in a recent client note.

Macquarie estimates the proposed oil and gas production from just 4 percent of the KG-D6 block and Cairn Energy's Rajasthan block could add $20 billion to India's GDP, cut its oil imports by 23 percent and add $59 billion in government profit-sharing and taxes.

Disputes like this "may dissuade future exploration and exploitation of India's mammoth upstream potential," it said.

This is not the first time that a fight between two of the wealthiest men in the world has grabbed newspaper headlines and sparked debate about the balance of power in corporate India. Mukesh was ranked 7th by Forbes in its list of global billionaires in March, with a net worth of $19.5 billion. Anil was at No. 34 on the list, with a net worth of $10.1 billion.

Reliance Industries last year cited a first right of refusal clause in the agreement to sink a bid by Anil Ambani's Reliance Communications for a merger with South Africa's MTN.

The details of the family settlement, which was brokered by the Ambanis' mother, have not been made public, and at least a dozen issues still need resolution, analysts say, ranging from properties to shares in companies.

But some expect the rule of law to ultimately prevail.

"Family disputes among corporate houses in India, and the world over, are not new," said Manoj Vohra, director of the Economist Intelligence Unit in India.

"The rule of law in India is better than in several developing economies. Opportunities are massive and fundamental in nature and unlikely to be clouded by this slugfest.

Brothers at war: Ambani gas hearings must clarify policy http://in.reuters.com/article/businessNews/idINIndia-43212620091019
Ambani Gas Hearings Must Clarify Policy http://www.businessworld.in/bw/2009_10_16_Ambani_Gas_Hearings_Must_Clarify_Policy.html
Ambani vs. Ambani: A Dispute over Natural Gas Prices Flares Up http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4409

1 comment:

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