Fuel duel: Ambani war may scare off investors

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 the country which 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 country'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 analyst at risk consultancy Eurasia Group in London, Seema Desai.

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.

Andhra Pradesh's Chief Minister 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 to decide who should get the gas at what price," YS Rajasekhar said on Sunday, according to The Times of India.

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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 per cent 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 per cent 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."

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KEY DATES IN AMBANI BROTHERS' FEUD

Following is a timeline of key dates in the Ambani rift:

• July 2002: Dhirubhai Ambani, a school teacher's son and founder of the Reliance business empire, dies. Mukesh Ambani becomes chairman and managing director of Reliance Industries Ltd, and Anil Ambani is made vice-chairman.
• November 2004: Feud between the brothers becomes public.
• June 2005: Family reaches a settlement to split the Reliance group in a deal brokered by their mother, Kokilaben.
• 2006: Formal split takes place, with Mukesh taking control of flagship Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining and textiles. He has since launched a retail venture. Anil gets telecoms, power, entertainment and financial services. The Anil Dhirubhai Ambani Group includes Reliance Communications Ltd, Reliance Infrastructure Ltd, Reliance Capital Ltd, Reliance Natural Resources Ltd (RNRL) and Reliance Power Ltd.
• July 2008: Reliance Communications calls off merger talks with South Africa's MTN after Mukesh makes a claim on the shares of Anil's telecom firm.
• June 15, 2009: Mumbai's High Court directs Reliance Industries and RNRL to enter a gas supply agreement within a month.