FRATERNAL CONTENTION

I wrote this in the Calcutta Telegraph of 11 August 2009, at the height of the feud between the Ambani brothers. It was unnecessary and undesirable; the Reliance empire was large enough to engage two brothers. The eventual truce came none too soon. UNANSWERABLE CHARGES?

The dispute between the Ambani brothers has hitherto progressed only in the courts. The weapons in courts are counsels’ pleadings. Indian counsels tend to throw in all possible arguments — good, bad and indifferent — into their briefs. Once the briefs are filed in court, they are in theory public and anyone can get hold of them. But, in fact, they are extremely difficult to get. The warring parties sometimes release the briefs to their friends in the press; but legal expertise is low and space limited in the press, and briefs are seldom fully reported. As a result, it has been extremely difficult to follow the Ambani dispute. Anil Ambani has done a public service by explaining to the shareholders of Reliance Natural Resources Limited in its Annual General Meeting the issues as he sees them. He made four specific charges. First, he accused Reliance Industries of refusing to honour its gas-supply agreement with RNRL. Second, he said that the price of $4.20 per million British thermal units that RIL proposes to charge customers is too high and would enable RIL to make exorbitant profits. Third, he accuses the petroleum ministry of siding with RIL in the gas dispute. And finally, he argues that India is going to have enough gas for its needs for years if not decades, that the costs of exploiting it are low, and that for the sake of its development, gas should be priced low — even lower than the $2.34/MMBtu that is stipulated in the agreements between RIL and NTPC and RIL and RNRL. Mukesh Ambani, through a faceless spokesman, replied that he did not wish to reply to Anil’s “baseless, malicious and wrong accusations”. This is actually a reply, though he may not realize it. It also comes straight from the pen of a legal hack — just the kind of thing mindless lawyers frequently say in courts. Last year, Anil sued Mukesh for what he said in an interview to New York Times. It was a pretty innocuous interview; it is difficult to see what was defamatory about it, unless it was Mukesh’s jocular statement that when the two divided up Reliance, Anil took with him the department in the business which spied on people in the government. For that Anil is suing him for Rs 10,000 crore. So Mukesh has grown cautious. In any case, Mukesh is a man of few words. He is a master of action, not of words; and it is action that Anil was referring to in his speech in the AGM. The specific action is that the two brothers signed an agreement in 2005 under which RIL promised to supply to RNRL gas from the Krishna-Godavari basin at $2.34/MMBtu. RIL has not delivered gas to RNRL as required by the contract. This is a simple fact; Mukesh cannot claim that he has delivered any gas. Hence it is a simple breach of contract. RNRL has sued RIL for it. RIL contends that the contract is superseded by the terms under which the government has given the lease of the K-G basin to Reliance, under which the sale price of gas has to be approved by the government. I do not know about the particular agreement with RIL. But I do know that there is no such stipulation in the conditions publicly laid down by the government for the New Exploration Licensing Policy VII, under which RIL has got its lease. Whatever evidence RIL had for its contention that the government was the arbiter was rejected by Bombay High Court on June 15, when it directed RIL to sign a contract with RNRL within a month which would promise RNRL 28 million cubic meters a day of gas for 17 years. RIL appealed to the Supreme Court against the High Court’s verdict. The Supreme Court heard both sides on July 30, and postponed the hearing to September 1. So far, RIL’s filibuster has succeeded. And as to Anil’s allegation that the petroleum ministry is hand-in-glove with RIL, the ministry filed a petition in the Supreme Court asking it to annul the agreement between Anil and Mukesh. The agreement is not in force at present; RIL has refused to comply with it. The benefit of the agreement, and consequently the loss from its non-implementation, are entirely Anil’s. Thus the petroleum ministry’s intervention is against Anil. It could argue that the intervention is equally against Mukesh, who would lose K-G gas if the government got its way. For what the government asked for is that it should be allowed to nationalize K-G gas, which it calls a “national resource”. On that logic, it could take away anyone’s private property. By giving oil concessions under NELPs, the government has created private property in mineral resources. It shares rights to that property in the form of oil-sharing arrangements that it has specified in the NELPs. It cannot then take away the private property by claiming that it is a “national resource”. Many of the oil concessions are given to joint ventures; for example in K-G, Reliance is in partnership with Niko Resources. Tomorrow the government will trick Niko Resources out of their rights in the concession on the ground that it is a national resource. This is not a legal argument; but more important, it is inconsistent with the rule-based capitalist system of which the government of India is supposed to be the guardian. The ministry of petroleum launched the eighth round of NELP on April 9. It has just extended the last date of submission of bids; that suggests that it was disappointed with the response. The response may have been poor because the hydrocarbon markets are down just now. But there may be other reasons. One could be the experience of those who won concessions in earlier rounds — for instance, the Ambani brothers. The Central government has repeatedly intervened in the lawsuits relating to their dispute. It has repeatedly taken positions that implicitly supported one brother. And now it claims that hydrocarbons are a “national resource” subject to its absolute disposal — that it can arbitrarily, and at any time, abolish the private rights to the hydrocarbons that it promises in NELP to create. That is how I would read the petroleum ministry’s maneuvers in the Ambani affair if I were Shell, Exxon or any other foreign oil company. I would note that Indian ministers have no qualms about working in favour of or against particular Indian industrialists, and of bending the rules if necessary. I would note that my legal rights vis-à-vis the government would be insecure, and that the judiciary would allow enormous delays in delivering justice. This was the reputation of India before the 1991 reforms; in one sphere — hydrocarbons — it remains unchanged. The Prime Minister has gone far beyond the reforms and is absorbed in higher matters these days. Having made friends with George W, he is courting Gilani now. But if he comes down sometimes from the higher reaches, he would do well to look into the machinations of his petroleum minister. In this case, it may not be enough to look into the matter. He may have to remove the minister.