Ambani brothers battle: end Game
Makarand Gadgil
Also see Without prejudice & Fanning the flames
The three wise men of the supreme court, who have the task of settling the dispute between the Ambani brothers fighting over KG-D6 gas have to decide not only on the letter of the law and whether the contractual agreement (the MoU) between the two brothers should prevail, but also on where the best interests of the larger public lie. Public good in this case does not involve only the government’s revenues but also the interests of the state-owned power generator NTPC, and therefore, the millions who buy NTPC’s power.
The three-judge supreme court bench headed by the chief justice of India, K G Balakrishnan, began hearings in the case last week and observed that both brothers are fighting like nations at war leaving the shareholders in the lurch. The court also suggested that the brothers explore the possibility of an out-of-court settlement or going in for arbitration. But it seems that the brothers want to fight it out in the court although Anil Ambani began making the right noises just before the apex court began hearing the case and offered an olive branch to his brother. Mukesh refused.
After the supreme court asked RIL’s counsel to limit his arguments to why the family MoU should not prevail—on whose basis the Bombay high court had delivered its judgement—RIL seems to have changed its strategy and decided to blame the government for the whole mess.
RIL’s counsel Harish Salve said that RIL is still willing to sell the gas to Reliance Natural Resources Ltd (RNRL) at US US $2.34 per metric million British thermal unit (mmBtu), the price committed to NTPC after global tendering. “But what RNRL refuses to read was that RIL’s commitment was always with a caveat that the supply of gas to NTPC at US $2.34 per unit was subject to the government’s approval.”
If the apex court upholds the Bombay high court judgement in favour of RNRL and asks RIL to supply the gas at US $2.34 per mmBtu instead of the government-determined price of US $4.20 per mmBtu, then RIL will take a longer time to recover its costs. This will affect the government’s share in the gas because the government’s share is linked to RIL recovering its capital expenditure. RNRL has also alleged that the RIL’s increasing its capital expenditure by almost four-fold from US $2.47 billion to US $8.8 billion, and that the country’s upstream regulator, the director general of hydrocarbons, V K Sibal, approved this capital expenditure in return for favours.
But if the apex court rules that the government has the right to decide the pricing and allocation of gas, then it will have an impact on NTPC’s case in the Bombay High Court where the power utility is fighting a separate battle with RIL for the supply of gas at US $2.34 per mmBtu. If NTPC is required to pay more for the gas, then the cost of its power generation will go up, and this will ultimately be passed on to consumers. While ruling in favour of RNRL, the Bombay High Court observed that since the 28 metric million standard cubic metre per day (mmscmd) which is to be supplied by RIL to RNRL at US $2.34 per mmBtu for 17 years is going to come from RIL’s share of the gas, there is no need for the government’s prior approval. However, RIL’s contention is that the agreement to supply the gas was signed by Mukesh Ambani in his personal capacity, and it can’t be binding on the company to honour this commitment. RIL’s directors even filed an affidavit to this effect in the court and claimed that the RIL board never gave its approval to the gas supply arrangement between the two brothers.
RIL also claims that though the demerger of the original Reliance empire took place on the basis of the family MoU, this MoU never came out in public because it was a secret family document. RNRL counters RIL’s claim by saying that there was a series of correspondence between the two companies as well as the legal firms representing both the companies before the demerger agreement was actually signed, and hence the basis of the demerger, the MoU between the two brothers, is not a secret family document.
Hiroo Advani of the Mumbai-based solicitor firm Advani & Co, which represents many oil and gas sector companies, rubbishes RIL’s stand. “When the chairman and majority shareholder of the company enters into an agreement and makes a commitment about an asset which belongs to the company it is presumed that he is doing so on behalf of the company.” If Mukesh Ambani doesn’t have such authority then RIL should sue him for exceeding his jurisdiction and causing loss to the company, Advani added.
He also said that the government has the right to veto the deal under the production sharing contract (PSC) if it thinks that there was some underhand deal involved in determining the price of a natural resource like gas, and that the principle of arms length was not followed while discovering the price. This principle was followed in the case of NTPC, and RIL’s bid for NTPC’s gas supply contract was the basis of the agreement between RIL and RNRL. Ashok Sreeniwas of the Pune-based think-tank, Prayas Energy Group, said that the issue is not in whose favour the court gives its verdict. “Rather, it is about how we are going to govern a sector as vital as the petroleum. Such a dispute would not have arisen had there been an effective regulatory mechanism in place to govern the sector. What we need is transparency in governing the sector, and this is what is currently lacking,” Sreeniwas observed.
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