A DETAILED REPORT ON

CORPORATE FEUD BETWEEN AMBANI BROTHERS

(REGARDING GAS SUPPLY FROM KG D-6 BASIN)

Project submitted to the University of Delhi for the degree of Bachelor of commerce (H) (Paper 37 of the curriculum)

ANIKET MUKHERJI ROLL NO- 737 UNDER THE SUPERVISION OF- DR. C. L. BANSAL

COLLEGE OF VOCATIONAL STUDIES UNIVERSITY OF DELHI NOVEMBER 2009

DECLARATION
This is to declare that the Project Report entitled A Detailed Report On Corporate Feud Between Ambani Brothers (Regarding Gas Supply From KG D-6 Basin) is based on my understanding of the subject and has not been copied from some published source or website.

Name: Aniket Mukherji

Dr. Inderjeet Dagar

Roll Number: 737

(Principal) Mentor: Dr. C. L. Bansal

Teacher-in-charge: Mrs. Deepa S. Garg

ACKNOWLEDGEMENT

Apart from the efforts of me, the successful completion of this project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this project.

I would like to show my greatest appreciation to my mentor Dr. C L. Bansal. I cant say thank you enough for his tremendous support and help. He guided me through every corner of this project and lent his support whenever it was needed. I felt motivated and encouraged every time I consulted him. Without his encouragement and guidance this project would not have materialized.

I would also like to thank Mrs. Deepa S. Garg for constantly enlightening me throughout the making of this project report. The guidance and support received from all the members who contributed to this project, was vital for the success of the project. I am grateful for their constant support and help.

TABLE OF CONTENTS
Introduction The NTPC Bid Saga: Root of the current dispute The Beginning The Gas Ownership Issue The Pricing Issue
Several Versions on Pricing Decoding the Price

Subsequent Developments Bombay High Courts order on June 15, 2009 Government in action Anil Ambani slams Mukesh, Government Government not to interfere in Ambani gas row Government takes on Anil Ambani, calls campaign unfortunate Mukesh writes to Oil Ministry, cries foul over ADAG ad Government reverses stand in SC, says not against family MoU A twist in the tale: Anil Ambani wants peace RIL rejects Anils peace offer

Current scenario The Supreme Court Hearings SC judge Raveendran withdraws from the case

The possible solutions Bibliography

INTRODUCTION
Indias biggest corporate battle is on. The row over supply of gas from the Krishna-Godavari D-6 basin (owned by Mukesh Ambanis Reliance Industries Limited) is smouldering. The basin is producing 31 million metric standard cubic metres per day (mmscmd), which is expected to hit a peak of 80 mmscmd. Anil Ambani, chairman of Reliance Natural Resources Limited (RNRL), claims that RNRL should be supplied a minimum of 28 mmscmd of gas for two of its powers projects at Dadri in UP and Shahpur in Maharashtra (both not operational currently), at a price of $2.34 per million metric British thermal unit (mmBtu) agreed upon in the Memorandum of Understanding (MoU) signed between the two brothers.

On the other hand, Reliance Industries Limited, headed by Mukesh Ambani, asserts that it never committed a price since it is subject to government approval and the government rejected the price of $2.34 per mmBtu in January 2006 as it does not compensate for cost escalations.

Along with this, a number of related issues play an important role in the developments of this battle royal such as the governments gas utilisation policy, different versions on pricing, the contentious NTPC bid to name a few. A comprehensive report has been prepared on these matters in the following pages after in depth study and analysis of the subject.

Mukesh Ambani contends that gas price is subject to

govt approval, not any private MoU

Anil Ambani accuses Mukesh of dishonouring the MoU and bagging huge profits at a price of $4.20 per mmBtu

THE NTPC-BID SAGA: ROOT OF THE CURRENT DISPUTE

The foundations of this feud were laid way back in 2003 when RIL won the bid to supply 12 mmscmd of gas to NTPC for 17 years at $2.34 per mmBtu- six years before the company began the gas production. But despite being the chosen bidder RIL says it was the preferred bidder and was never really awarded the bid- the two companies never reached a gas supply agreement because of dispute over sharing of liabilities

NTPC had sent a Letter of Intent to Reliance, which the latter accepted. However, an agreement was not signed between them. It is not clear whether the Reliance's acceptance of the Letter of Intent amounts to a concluded contract or not. An agreement was not signed between Reliance and NTPC, but the Letter of Intent was accepted.

However, if an agreement would have been signed, then the case could have been concluded easily. In that case, there would have been a breach of agreement. But the agreement was not signed.

On December 20, 2005, National Thermal Power Corporation moved the High Court of Bombay against Reliance Industries, putting into action a warning earlier this month that it would take "legal and other steps" against the company for not honouring the Gas Sale and Purchase Agreement (GSPA) between the two.

In July 2009, the Bombay High Court allowed RIL to amend its plea in the KG basin gas case in the midway. RILs move to amend its plea was based on the oil ministrys suo-motu affidavit filed in the same court but in a separate case (RIL vs. RNRL) that was later withdrawn, a company official said. NTPC filed an appeal in Supreme Court against the amendment made by RIL in chamber summons (no 218 of 2009) based on the revised petition of petroleum ministry. Later on, oil ministry filed a revised petition in the apex court stating that the $4.20/mmBtu price fixed by the EGoM was without prejudice to NTPC vs. RIL case.

But on 24th September, 2009, NTPC signed a pact with Mukesh Ambani-led Reliance Industries to buy a part of natural gas allocated to it from K-G D6 fields at a rate of $4.2 per mmBtu.

NTPC will buy 0.61 million metric standard cubic meters of gas a day for its plant in Anta in Rajasthan, an industry official said. The gas will start flowing in the next 7-10 days, the official added.

The volumes are less than one-fourth of the 2.67 mmscmd gas the Government had allocated to NTPC.

The state-run power utility signed a Gas Sales and Purchase Agreement (GSPA) with RIL and a separate Gas Transportation Agreement with Reliance Gas Transportation Infrastructure Ltd.

IMPACT ON RIL- RNRL CASE

When the NTPC bid was made there was no Mukesh Ambani versus Anil Ambani. The idea behind bidding low could have been to get a prestigious customer like NTPC, which would have helped in raising funds for capital expenditure. Besides, the then- unified RIL would have wanted to benefit from cheap gas and cheap power to become a dominant player in everything from well-heads (gas) to wall sockets (electricity supply). The division between the brothers undid the plan. This price ($2.34 per mmBtu) served as the benchmark for the Memorandum of Understanding signed by the two brothers in 2005 and later on led to a massive corporate battle.

THE BEGINNING
It all began when Reliance Industries was divided into two and allocated among Mukesh and Anil. The Memorandum of Understanding (MoU) between the two brothers entitles Reliance Energy Limited (earlier RNRL was known by this name) to 28 mmscd of gas from the KG basin. Additionally, in case the contract between RIL and NTPC does not materialise, the MoU also provides for the Anil Ambani group to get the NTPC entitlement as well, taking the total entitlement to 40 mmscd.

But later on Mukesh refused to honour the MoU on the grounds that gas is governments property and hence the price decided by the government should be the sale price of gas, i.e. $4.20 per mmBtu rather than $2.34 as mentioned in the MoU. He also said that the costs of gas production have almost doubled in the years passed and hence RIL would incur heavy losses in case it sells it at $2.34 per mmBtu. Thus, the war began between the two brothers with the case first being heard in Bombay High Court that upheld the MoU and later on hoisted to the Supreme Court.

Thereafter, for the entire future the balance reserves (including new discoveries of gas from new explorations and/or bids as may be submitted from time to time), the quantity of gas would, at the option of the Anil Ambani Group (exercised from time to time), be split in the ratio of 60:40 with 60% to Mukesh Ambani Group and 40% to the Anil Ambani Group. -MoU between Ambani Brothers

THE GAS OWNERSHIP ISSUE

Whether the respondents by a privately-negotiated MoU, the full content of which has not been made public till today, deal with the allocation and use of natural gas, which is a valuable and scarce commodity and a national asset belonging to the Union of India? Whether in a private settlement, the property of the union of India can be appropriated and used as the respondents (RILs) private property... -Governments Special Leave Petition to the Supreme Court filed on July 18, 2007

According to the gas utilisation policy, existing fertiliser units should get the first priority, then the LPG and petroleum industries, then power, then city gas- and its after all those sectors that refining, which is one of RILs core operations- gets a look-in.

Indeed, the governments gas allocation policy has plenty to do with the battle royal that involves Mukesh and Anil Ambani and the government. According to the production sharing agreement (PSC) signed between the government and RIL, the gas produced from KG D-6 fields has to be utilised in accordance with the utilisation policy. And its this policy that is working against the interests of Anils RNRL, which has no power units operational, and hence cannot be privy to gas. RNRL has two gas based power projects on the drawing board- a 7,480 MW unit in Dadri in UP, and a 2,800 MW plant in Shahpur in Maharashtra. But as Minister for petroleum Murli Deora said in Parliament: This (Dadri Power plant) is neither installed nor functional. The government also says that if they have to give gas to a still-on-the-drawing board plant why only to Anils? Why not to NTPC or some other corporate?

The upshot: RNRL cant get gas, and should not be hankering for it. Anil rubbishes this claim and says that the government had agreed to supply gas to Dadri. He adds that the fact that RIL has not been able to sign a bankable gas supply contract has only resulted in the Dadri project- and other power projects- getting delayed. Anil hopes to get the first phase of his gas based power projects up and running30 months after securing supply.

So whose gas is it anyway: what should it be priced at; how much of it should be supplied; and for how long- these are questions on which hinge sizeable fortunes of the two warring Ambani brothers, as well as the government. At stake are billions of dollars. Just two of the gas fields Dhirubhai 1 and Dhirubhai 3 one of RILs 18 in KG Basin D-6 block- have the potential to yield revenues of just under $40 billion (Rs 1,92,000 crore) over their life-span (in a best case scenario).

Mukesh Ambanis commitment of 40% of all future gas finds to Anil Ambanis companies has raised the hackles of the government. Article 297 of the Constitution of India lists petroleum as a resource, which the Union of India has an authority over. Article 6 of the PSC states that the resources will be explored in the interests of India. Here, for crude, the contractor has full freedom. But for gas, the governments utilisation policy and pricing policy- both given by the EGOM (Empowered Group of Ministers)- are the curtailing clauses. -The affidavits submitted by the government in the Bombay High Court included the PSC.

THE PRICING ISSUE

The huge amount of wealth that is on stake of the Ambani brothers is conditional on one crucial dynamic: Price. The two prices being, well, haggled, over are $2.34 (Rs 112.32) per mmBtu (million metric British thermal unit), at which Anil wants to buy 28 mmscmd over 17 years: Mukesh Ambanis RIL wants to sell at $4.2 (Rs 201.6) per mmBtu subject to revision after five years. The difference of just fewer than two dollars in the respective prices being demanded can result in profits or losses that run into billions of dollars. Anil, for instance, feels that if he has to buy gas at $4.2 per mmBtu, his company Reliance Natural Resources Limited (RNRL)-set to supply gas to his proposed power units- will lose a cool $1 billion (Rs 48,000 crore approx.) over 17 years. Whats more, he alleges that RIL is attempting to make super-normal profits of over Rs 50,000 crore by pricing its gas at $4.20 per mmBtu.

The Mukesh camp, for its part, reckons RIL will incur a loss of $5 billion (Rs 24,000 crore approx.) at peak production of 80 mmscmd from Dhirubhai 1 and Dhirubhai 3 if the government approves a price of $4.2 but RIL has to sell at $2.34- which is the case being made by the Anil camp.

RNRL---------------------- $2.34 per mmBtu

RIL--------------------------$4.2 per mmBtu

SEVERAL VERSIONS ON PRICING

Let us now have a look at the different versions of pricing given by the parties related to this corporate battle between the Ambani brothers.

RIL:

The governments approval is needed for the gas sale price. A lower gas sale price implies a subsidy from Reliance and a loss to the government.

RNRL:

The government approval is only needed for the price for calculating royalty, profit share and income tax. The contractor (Reliance Industries Limited) is free to sell to anyone at a lower price. For example, its possible to have one price for sale and another price for valuation of governments share in profits.

GOVERNMENT VERSION 1:

Under the Production Sharing Contract, government had said that the contractor is free to sell gas at arms length prices, the government will approve gas prior to the sale of gas.

GOVERNMENT VERSION 2:

The report on gas pricing stated that price should be market determined, that government intervention is required if no arms length price can be obtained, the contractor is free to sell to anyone at a price lower than the

government approved price and how the resultant under-recovery would be shared is a subject matter of mutual discussion between the seller and the buyer.

GOVERNMENT VERSION 3:

In its affidavit, the government says that it has an explicit role in approving sale prices and gas cannot be sold at a price that is different from that used for its valuation.

BOMBAY HIGH COURT (SEPT. 2007):

...The respondents (RIL) cannot be directed to sell or supply gas at subsidised rates and to incur losses. The effect of MoU, therefore, needs to be interpreted to mean that the applicant is entitled to the share and supply of gas at a reasonable price, quantity and tenure provided both the parties agreed to the suitable arrangement.

BOMBAY HIGH COURT (SEPT. 2007):

RIL and RNRL should adhere to the exact contents of the MoU of June 2005, which specified the price of $2.34 per mmBtu for 17 years.

For now the focus of the argument has shifted to the validity of the entire gas-supply agreement in the MoU signed between the Ambani brothers. But the issue of pricing remains the key and its resolution cant be postponed, no matter how many aspects are looked into.

DECODING THE PRICE

Let us go through a series of calculations from the perspective of both RIL and RNRL so as to find out which price benefits whom and in what manner.

RILs CALCULATIONS
Scenario 1 Govt. Approved price: $4.2 Selling Price: $4.2 RIL : GOVT : RNRL : $/mmBtu Revenue(at approved price) Revenue (at selling price) Cost of Production* Total govt. intake Net RIL intake RILs return on capital Total take (Govt. + RIL) 4.2 4.2 2.9 $ Billion 38.3 38.3 26.8 Scenario 2 Govt. Approved price: $2.34 Selling Price: $2.34 RIL : GOVT : RNRL : $/mmBtu 2.3 2.3 1.8 $ Billion 21.4 21.4 16.1 $4.2 billion $5.3 billion 5% $9.4 billion Scenario 3 Govt. Approved price: $4.2 Selling Price: $2.34 RIL : GOVT : RNRL : $/mmBtu 4.2 2.3 2.9 $ Billion 38.3 21.4 26.8

$14.9 billion $11.5 billion 11% $26.4 billion

$14.9 billion -$5.4 billion -5% $9.4 billion

Govt. Take as % of total take RILs take as % of total take

56% 44%

44% 56%

158% -58%

Explanation:
* Includes royalty, operational expenditure, capital expenditure, govt share in profit petroleum and income tax Total govt take includes royalty, share in profit petroleum and income tax Net RIL intake= Revenue at selling price (profit petroleum to government + royalty + operational expenditure + capex + income tax)

RNRLs CALCULATIONS
POST-WELL EXPENDITURE RILs development expenditure (Capex) in KG basin Production (operating) expenditure Interest Cost Total post-well expenditure COST ($/MMBTU) 0.5418 0.2211 0.1316 0.8945

PRE-WELL EXPENDITURE Exploratory expenditure (Capex) Production expenditure @ 10% of capex* Total pre-well expenditure Royalty @ 5% on margin (of $3.98) TOTAL COST OF PRODUCTION Govts share @ 1% (10% of 10%)

COST ($/MMBTU) 0.144 0.170 0.314 0.200 1.41 0.02 1.43

TOTAL NET COST OF PRODUCTION

*Conservative assumption

Even at sales price of $2.34 per mmBtu, RIL maintains a profit margin of little over 60%, claims Anil Dhirubhai Ambani Group (ADAG).

Note: Calculations shown are excerpted versions of detailed calculations

The ADA camp also alleges capital costs have ballooned fast:

CAPEX SUBMISSION

ORIGINAL (2004) 40 2.5 -

REVISION 1 (2006) 80 5 200

REVISION 2 (2006) 60 9 360

DIFFERENCE

Gas quantity (mmscmd) Capital cost ($ billions) Escalation %

4 160

The more the gas sold. The more the government gains:

INVESTMENT MULTIPLE Less than 1.5 1.5 to less than 2 2 to less than 2.5 2.5 and higher

GOVT SHARE IN PROFIT PETROLEUM (%) 10 16 28 85

Note: Investment multiple is the ratio of accumulated net cash income to accumulated capex. Profit petroleum is revenue minus royalty minus opex minus capex

From the above calculations, it seems quite evident that RIL is in the sweetest spot if gas prices are at $4.2 per mmBtu. But if- as Anil wants- the government approved price is $4.2 and the

selling price is $2.34, RIL could lose big time. The Anil camp, though, thinks that even at a gas price of $2.34, RIL will be working at chunky profit margins. And for the government, its a straight forward correlation- the higher the income from gas sales, the more it gains.

THE MOTHERS ROLE

The MoU signed between the brothers on June 18, 2005 says: Kokilaben recognises that a long-term, stable source of gas from RIL, which has the largest find of gas, was absolutely essential for the growth plans of the Anil Ambani Group, and in order to enable Anil to carry REL to even greater heights. Kokilaben has, therefore, specially stressed and impressed upon Mukesh (that he) shall personally ensure that at the time of finalisation of the binding gas supply agreement the terms provide the required comfort and stability in these agreements, even if that means some departure from the NTPC standard.

In April 2006, Kokilaben gave her final direction on the MoU which stated that there are two types of issues pending...those in the personal domain and those that are in the corporate domain.... I will not give any decision or direction on matters which are in the corporate domain since they are public listed companies. This is from a letter that is believed to be in the possession of both the brothers. Both RIL and RNRL are listed companies and this is perhaps the reason why the mother isnt intervening.

Going by the public statements made so far, the Anil Ambanis side seems keener to seek the mothers intervention than Mukesh Ambani. Perhaps, because, as the MoU states, she had made a special mention for completion of a bankable gas supply agreement during the process of division of the business. But going by her April 2006 letter, she seems reluctant to intervene in any matter that involves listed companies.

SUBSEQUENT DEVELOPMENTS

In 2006, Anil Ambani's RNRL filed a case against Mukesh's RIL over gas supply in the Krishna-Godavari Basin. In 2007, a company judge restrained RIL from creating third party rights in gas meant for RNRL. Later that same year in October the government approved the market price determined by RIL at above $4.20/unit. The company judge on October 15, 2007, upheld RNRL's case, saying the MoU between parties was binding. Both RIL and RNRL filed separate appeals against the judgment in December 2007. The Bombay High Court stepped in on June 15, 2009, asking both companies to honour the 2005 MoU.

BOMBAY HIGH COURTS ORDER ON JUNE 15, 2009

The Bombay High Court in a June 15, 2009 order upheld Reliance Natural Resources Ltds (RNRL) position on the gas price in its dispute with Reliance Industries Ltd (RIL), and ordered that the Anil Ambani-led firm's dispute with Reliance Industries Ltd (RIL) over gas supply should be resolved in a month through a fresh suitable arrangement.

Under the fresh suitable arrangement'' the price of gas that RIL has to supply to RNRL will have to be $2.34 per mmBtu, RNRL lawyer Mahesh Jethmalani said, adding that the quantity to be supplied would be 28 mmscmd (million cubic metres a day) and the tenure of 17 years. RIL lawyer Milind Sathe said that the Court today asked the two parties to enter into a new agreement as per the Memorandum of Understanding (MoU)'' between the Ambani brothers prior to the splitting of the Reliance Group. The new agreement based on these parameters will have to be entered into within a month and until then, the interim order passed by the High Court earlier will continue, Jethmalani said.

Analysts point out that this is akin to a cash transfer to Anil Ambani, and could impact RILs net present value (NPV) by as much as $3.6-4 billion (RS 17,280-Rs 19,200 crore). RIL, of course, is not happy and has approached the Supreme Court on July 4, seeking a stay on the June 15 verdict and in the hope of a different interpretation. Anil was the first to approach the Apex court on the grounds that RIL has- as per the High Courts verdict- failed to file an agreement with regard to gas supply to RNRL; RIL says it cannot do so without government approval (on price, tenure and quantity). Anil also feels that the High Court should have asked RIL to supply gas as per the terms of the supply to NTPC instead of asking it to negotiate an agreement with RIL again. Also approaching the Supreme Court is the government which has been shaken from its slumber after the High Court order, which has significant implications on the governments rights to formulate and implement gas utilisation policy and on the production sharing contract (PSC). Initially, the Supreme Court hearings were to begin from September 1, 2009, but were later on postponed till October 20, 2009.

GOVERNMENT IN ACTION

Being a somewhat silent witness to the fight, the government suddenly swung into action, dusting off its PSC, quoting gas supply and challenging a mid-2005 memorandum of understanding (MoU) between the brothers in the Supreme Court on July 18. Whats got the government goat in the MoUsigned in the presence of Ambanis mother Kokilaben- also has the option of entitling Anil to 40% of all future Reliance gas (albeit at market prices). The petroleum ministrys beef is that the brothers are fighting over something that does not belong to them. Anil counters that the price of $2.34 is not part of the family arrangement but one that is included in an agreement approved by RILs board.RIL contends that neither its board nor the shareholders know of the MoU are so are not bound by it. That the court has lent its legitimacy to the family MoU has clearly rattled the government, which is dead against the option of a sharing arrangement of the gas (not just from KG D-6 fields but also from other fields to be explored and operated by RIL) in a ratio of 60:40 (with RNRL getting 40) as proposed in the MoU.

Asserting its ownership over gas from KG-D6 fields, the Government hit at the Mukesh and Anil Ambani groups for "surreptitiously" appropriating national resources, treating it as their personal and family property. Seeking a stay on the June 15 Bombay High Court order on gas supply on the basis of a family agreement, the Government said in a petition before the Supreme Court that the MoU between the Ambanis was "blatantly illegal" and in disregard to the provision of the Production Sharing Contract (PSC).

"(The MoU) should be declared null and void," as it would mean that all the gas from the KG basin would be owned and utilised by RIL and RNRL, said the petition, a day after the Oil Ministry filed an affidavit in connection with cross-appeals by the group firms of the two Ambanis.

"Obviously, the pressing needs of the priority sectors... cannot be allowed to be held hostage to the benevolence and mercy of these two respondents," the petition said, praying for continuation of sale of gas from KG basin to users other than RNRL.

The Union Government on July 18, 2009, filed its petition in the Supreme Court in the war between the Ambani brothers. The Government has already said that natural gas is the sovereign property of the country and any MoU between two private parties stands void in the national interest.

The government has been dragged into the controversy by Anil Ambani who went public with his allegation that the Petroleum Ministry is siding with his brother. Under pressure to come clean on this the Government is working on a face saver.

Sources have revealed that the Law Ministry has been asked to examine Petroleum Ministry affidavit in Ambani gas dispute. Attorney General's opinion has also been sought and no decision has been taken on amending the affidavit. Sources also say the Government has the sovereign right to decide on pricing and distribution policies.

ANIL AMBANI SLAMS MUKESH, GOVERNMENT

Reliance Natural Resources Ltd (RNRL) Chairman Anil Ambani went public with the allegation that the Petroleum Ministry is favouring his elder brother Mukesh in the battle for gas from the Krishna Godavari Basin.

At the Annual General Meeting of RNRL, Anil Ambani made scathing attack on Reliance Industries Limited (RIL) Chairman and Managing Director Mukesh Ambani.

RIL has shown dishonourable conduct in persistently refusing to honour the gas supply contract. Two, Reliance Industries is seeking to make exorbitant profit at the cost of power and fertiliser sectors in the country," claimed Anil while addressing the 15th Reliance Power Annual General Meeting at Birla Matushree in Mumbai on Tuesday.

Anil has also claimed that the cost of production of gas in the KG Basin is $1.41, and at $4.20, RIL is working out a huge profit margin. He says that it would be against public interest to price gas in India for any user above $1.5 (Rs 72),n and that India has the highest short term gas prices in the world.

Meantime, Anil has also accused his brother of gold plating costs, what with capital expenditure going up by Rs 25,000 crore to Rs 45,000 crore when production was doubled to 80 mmscmd. The capex, feels Anil, shouldnt have gone beyond Rs 20,000 crore (from Rs 12,000 crore for 40 mmscmd). RIL officials dismiss such allegations. They point out that since 2003-2004 (when the initial development plan was blueprinted), over the next 3-4 years costs of drilling, hardware, people and equipment shot up between two to four times. Also, they pointed out that the production estimates doubled, but the capex didnt. The fastest deep-water development record (from discovery to production) is six years in Egypt. We did the same in 6.5 years, with much worse weather, no preexisting infrastructure or services. CERA (Cambridge Energy Research Associates) - the global standard in monitoring cost efficiency- has rated RIL as one of the top 100 projects in cost management, points out a senior RIL official.

Anil also made a direct attack on the Petroleum Ministry saying that it is siding with Mukesh in the case. "The Petroleum Ministry has publicly sought to justify escalated intervention on the ground that it did not know the terms of RIL-RNRL gas arrangement," he said.

He suggests that the bogey of sovereign ownership is being raised with the sole purpose of bailing out RIL and helping them renege on their contractual commitments. The crux of this accusation lies in the apparent leeway that RIL was given to jack up, via a process of price discovery, the price from $2.34 to $4.20. Government officials point out that the price was approved by the EGOM (empowered group of ministers).

Addressing shareholders of the company, he also said the government would not lose a single rupee even if the gas from the fields off the Andhra Pradesh coast were to be supplied to his company at the originally contracted price of $2.34 per unit.

"The gas price of $2.34 per unit was not decided by two brothers on the dinner table," Anil Ambani said, adding the price was based on the prevailing global oil scenario and legitimately approved by the Reliance Industries board in 2005.

Anil Ambani said his Reliance Natural Resources was not claiming ownership of the gas assets as was being made out by the petroleum ministry but only staking the legitimate claim over the supplies, based on a corporate agreement.

According to him, if the government so desired, it had ample leeway to even take over the gas assets. He also sought to bring to light what he called were questionable actions by the Oil Ministry ever since changes were made at its top level in 2006.

"For the record, I want to emphasise that the government does not stand to lose even a single rupee even if Reliance Industries sells the gas at lower than approved valuation price to any party," he contended.

"If Reliance Industries gets a higher sale price from us based on the price of what the petroleum ministry wants to fix for the first few years, 99 per cent of all revenues and profits will go to Reliance Industries," he said.

"Only a measly 1 per cent will accrue to government of India."

Petroleum and Natural Gas Minister Murli Deora said he could not comment on the scathing accusations levelled against his ministry by Anil Ambani as the matter was sub-judice.

Anil Ambani said Reliance Industries, founded by his late father Dhirubhai Ambani, was misusing its power as India's largest company and the near monopoly it enjoyed over natural gas production.

"It is unfortunate that Reliance Industries has tried every trick in the book, and apparently several outside the book, to back out of its solemn, legal and contractual agreement," he said.

Mukesh's office has not officially reacted to Anil's outbursts. RIL's senior counsel said the Supreme Court should decide the matter and that Anil should not make the case a public debate. "I think enough has been spoken about this case in the public domain to inform curious people. I think we should now all have the decency and courtesy to reserve out comments," said RIL counsel Harish Salve.

Anil Ambani group had also started a front-page ad campaign in almost all the national dailies, questioning the Petroleum Ministry's role on the gas issue.

A newspaper ad from Anils ad campaign criticizing the petroleum ministry

Anil Ambani Group on October 11, 2009 also alleged that RIL directors' claims of not having approved the Ambani family MoU and actions of their Chairman Mukesh Ambani, who signed the pact, were in breach of criminal trust and fiduciary duties.

GOVERNMENT NOT TO INTERFERE IN AMBANI GAS ROW

The Centre on August 21 replied to Anil Ambani's allegations that it sided with Reliance Industries Ltd at the cost of its own profits and that of National Thermal Power Corporation (NTPC).

"The government does not want to be involved in the gas war between the Ambani brothers. But it has to protect its own interests. The dispute between NTPC and RIL has nothing to do with that between the two Ambani companies. NTPC has the right to take its own decision," said Union Power Minister Sushil Kumar Shinde in New Delhi on Friday.

A four-member group of ministers consisting of Law Minister Veerappa Moily, Petroleum Minister Murli Deora, Finance Minister Pranab Mukherjee and Power Minister Sushil Kumar Shinde met to discuss the Ambani row over the Krishna-Godavari Basin gas in New Delhi for the second time in the last two days.

Law Minister Veerappa Moily after the meeting said the government was looking for a similar stand in the case between Mukesh Ambani's RIL and NTPC as in the one between RIL and Anil Ambani's Reliance Natural Resources Ltd (RNRL). Both NTPC and the Anil Ambani group have separate court cases running with RIL over the pricing of oil in the KG basin.

GOVERNMENT TAKES ON ANIL AMBANI, CALLS CAMPAIGN UNFORTUNATE

The Union Government ON August 22, asked Mukesh Ambani and his younger brother Anil Ambani to show restraint after the Anil Dhirubhai Ambani Group went on a media overdrive with a sustained ad campaign in several national dailies. Replying to allegations that it sided with Reliance Industries Ltd at the cost of its own profits and that of National Thermal Power Corporation (NTPC), the Government said that it stood by the price fixed by the Empowered Group of Ministers at 2 per mmBtu.

Countering the claims made by ADAG that the Government stood to lose because of the Petroleum Ministry's connivance with Mukesh Ambani-led RIL on the gas issue, an official statement said the Centre would earn Rs 84,000 crore from Krishna-Godavari-D6 gas fields and not just Rs 500 crore as projected in the campaign.

The statement also said that Anil Ambani's ad campaign in newspapers was unfortunate and advised restraint since the matter was sub-judice. The government also said that it was also committed to protecting NTPC's interests and committing to uphold the rule of law while making it clear that it cannot enter into "needless and unnecessary controversies".

ADAG, however, maintained its ad campaign was not propaganda against the government. ADAG claimed that the facts were correct and that the government would be getting only Rs 500 crore while RIL would gain Rs 50,000 crore by selling gas at $4.2 per mmBtu.

A decision to issue the statement was taken by a group of ministers on Thursday night at a meeting that was attended by Finance Minister Pranab Mukherjee, Petroleum Minister Murli Deora, Power Minister Sushilkumar Shinde and Law Minister Veerappa Moily.

MUKESH WRITES TO OIL MINISTRY, CRIES FOUL OVER ADAG AD

The Mukesh Ambani-led Reliance Industries Limited on August 24, 2009, sent a new letter to the Oil Ministry. The letter has called RNRL's advertisement campaign a malicious, mischievous, baseless and an ill-informed one. It says that the campaign attempts to belittle the achievements of professionals and regulators. It further goes on to say that the ad is an attempt to destroy the value of RIL and its partners in the market.

The letter was shot off a day before the Government issued a statement on the feud between the Ambani brothers on Friday.

GOVERNMENT REVERSES STAND IN SC, SAYS NOT AGAINST MoU

The government on September 1, 2009, informed Supreme Court that it was not for declaring the Ambani family settlement "null and void" as prayed earlier and said that its policies on gas pricing were without prejudice to power utility NTPCs case against RIL.

"It (government) is in no way concerned with the private dispute between (Mukesh-led) RIL and (Anil group firm) RNRL or between the Ambani brothers, but is only concerned with its rights as owner and regulator of natural gas," the Centre said in an application.

A TWIST IN THE TALE: ANIL AMBANI WANTS PEACE

On October 11, 2009, Anil Ambani, after a pilgrimage to the Himalayan shrines of Kedarnath and Badrinath, issued a statement saying that all disputes between him and his brother can be resolved in a constructive and cordial manner. He said he has maintained the greatest of love, affection and respect for Mukesh... and all disagreements can be sorted out in a cordial and conciliatory manner.

FULL STATEMENT MADE BY ANIL AMBANI

In June 2005, with the blessings and approval of my respected mother, Smt. Kokilaben Ambani, and in line with the vision and value creation

philosophy of our beloved founder Chairman, Shri Dhirubhai Ambani, we announced the restructuring of the Reliance Group.

I had sincerely believed then, that we had resolved all issues, and come to an amicable settlement that would create two of India's most dynamic business groups, bring peace and harmony to our family, and generate substantial wealth for millions of shareholders of the Reliance family. Over the past 4 years, some parts of that promise have been realized.

Unfortunately, the joy of that achievement has been tempered by the sorrow, pain and anguish of continuing disagreement and acrimony with my elder brother, Mukeshbhai.

Over these past 4 years, I have persevered with utmost sincerity, humility and good faith, and left no stone unturned to try and resolve our differences.

To my lasting regret, despite all my well-meaning efforts, I have failed - pushing us even to the extreme step of recourse to litigation to protect the interests of over 11 million shareholders of our Group. Over the past few weeks, many elder statesmen, trusted family members, and long-standing friends of my father, Shri Dhirubhai Ambani, who have always had the best interests of the nation and the Ambani family at heart, have talked of the need to break the current impasse, and to find a solution that puts an end to this bitterness and rancour; and paves the way for substantial future growth and value creation for the country and millions of our shareholders.

I agree with each one of them.

This has been a time of deep sadness and pain for me personally.

Yet, throughout this very trying period, I have maintained the greatest of love, affection and respect for Mukeshbhai - as I have done since my birth.

In that spirit, I have made this pilgrimage today to the holy shrines of Kedarnath and Badrinath, in the hope of seeking divine inspiration and blessings, in trying to heal the wounds, and in making a renewed effort to resolve, reconcile and reciprocate.

I sincerely believe that Mukeshbhai and I can, even at this late stage, sort out all our disagreements, in a constructive, cordial and conciliatory manner, if we both commit to getting this done.

The issues are only a handful, and the facts are well known. My judgement says that they can all be resolved in a matter of weeks, and will not require several months of discussions.

Accordingly, with the blessings of my mother, and invoking the power of Lord Shiva from this most sacred of holy places, I am once again reaching out to Mukeshbhai - and hope and pray that my feelings will be reciprocated, and we will arrive at a solution to all outstanding issues, with a generous heart, a willing mind, and an accommodating spirit.

There can be no better gift to my mother, Smt. Kokilaben Ambani in her 75th year, and to the legacy of our beloved father, Shri Dhirubhai Ambani, the proud creator of the Reliance Group.

RIL REJECTS ANILS PEACE OFFER

RIL refused the peace treaty offered by Anil Ambani and stated that it is not just a family matter, but one having vital national interests. The RIL has always maintained that the dispute under litigation is not merely a family matter, as Shri Anil Ambanis statement once again tries to make out to be, RIL stated late on October 11, 2009.

FULL STATEMENT BY RIL

Reliance industries Ltd. (RIL) has noted the comments made by Shri Anil D Ambani with the care and concern they deserve.

RIL welcomes this statement, and hopes that it is a positive change in the negative, calumnious and malafide campaign launched by R-ADAG against RIL. RIL believes that there is no contentious issue in the world that cannot be resolved satisfactorily through mutual dialogue, provided the proposal for reconciliation is anchored in good and honest intentions RIL has always maintained that the dispute under litigation is not merely a family matter, as Shri Anil Ambanis statement once again tries to make out to be. Vital national interests in terms of securing governments revenue from the natural gas, the government owns and GoIs sound policy framework for promoting Indias energy security, are at stake. The interests of RILs shareholders are also at stake. RIL does not belong to a family. It belongs to shareholders, to those associates who have made this journey possible and most importantly to the nation, India.

Issues which arise out of a decision of the Bombay High Court transcend any private differences between two brothers or two corporate entities; can now only be decisively resolved by a decision of the Highest Court. RIL sincerely hopes that any overtures for rapprochement to end acrimony are sincere and in no way related to the ongoing hearing of the case in the Honourable Supreme Court.

Sadly, the conduct of R-ADAG so far makes it difficult for RIL to believe that Shri Anil Ambani has had a real change of heart. For last many years, Sh. Anil Ambani has indulged in a malicious campaign against RIL and its chairman. The campaign reached its nadir in recent months through a vicious series of advertisements, unprecedented in Indias corporate history. RIL while denying all the false accusations has responded to this campaign with dignified silence.

What is both saddening and perplexing is that Shri Anil Ambani has yet again sought to communicate to RIL and its Chairman through the public domain, whereas he could have easily contacted his elder brother directly. In order to demonstrate that his intentions behind the latest overture are bonafide, we urge Shri Anil Ambani to put his sentiments into actions. We can now only hope, that the deeds of Shri Anil D Ambani and his associates are reflective of the emotions expressed in the statement. In the last 48 hours itself, Shri Anil Ambani & RADAG have made allegations against the Group and its directors which are not only untrue but increasingly hurtful. Hopefully this way of engagement shall also change. On its part, both the RIL Chairman as also RIL have always wished him well and will continue to do so.

Finally RIL welcomes this positive indicator and will not be found wanting in responding to them constructively.

THE CURRRENT SCENARIO

THE SUPREME COURT HEARINGS
The hearings began in the Supreme Court on October 20, 2009, in front of a bench comprising of Chief Justice K.G.Balakrishnan, Justice R.V.Raveendran and P Sathasivam. Reliance Industries told the Supreme Court that the 2005 family agreement to divide the Reliance Empire was a pact between the Ambani brothers and Anil should sue Mukesh if he feels aggrieved.

RIL Board had not approved the family MoU that provides for supply of gas by the company to Anilled RNRL, Mukesh Ambani-run RIL's senior counsel Harish Salve said on the first day of hearing on the gas dispute in the apex court.

RIL contended that it couldnt honour the commitment made in the 2005 family agreement between the two brothers due to the governments pricing and distribution policies. At which, Anil Ambanis Reliance Natural Resources Ltd (RNRL) senior counsel Ram Jethmalani said the policy was binding on new contracts and not existing ones.

However, Salve continued to draw support from the policy and said it was a better arrangement for the gas supply. He contended that supplying gas at any price lower than what has been fixed by the government would be suicidal for RIL.

Jethmalani intervened again, saying the production tax of gas from KG basin is a meagre 89 cents. He claimed RIL would make a profit of several thousands of crores of rupees despite selling the gas at $2.34 (Rs 112) per unit.

Appearing for the ministry, additional solicitors general Vivek Tankha and Mohan Parasaran said the Centre had a definite grievance against the HC order and it would make its case good despite the objection of RNRL to it being treated as a necessary party in the case.

But the volume of documents that the three parties have saddled the court with posed a problem for the Bench. It said there were 30 volumes of documents, many of which were duplicated by the parties. "Could you all not sit down together and make a common volume of documents for easy and ready reference," the Bench asked. The parties agreed to do so.

Hearing petitions by the group firms of both the Ambani brothers, challenging the Bombay High Court order of June 15 that asked RIL to reach an agreement with RNRL for gas supply, a bench headed by Chief Justice K G Balakrishnan observed that it is not a fight between shareholders.

It also wondered whether the case truly concerned a dispute over the supply of gas or was shadow boxing between the "stewards of the two companies -- RIL and RNRL". "If the shareholders of neither company are fighting, then is this shadow boxing?" it asked.

The bench said it's like people of two countries don't have any problems, but there is a fight between two persons who are heading these countries. "Thus, there is no fight between the two companies, but just between two individuals which has percolated down to the people," said the judges on the bench.

The Bench loudly wondered, "What is the issue? Can the court determine what a suitable agreement is if the entire MoU is not disclosed. Can the court study the mind of the brothers? Unless the suitable agreement is clearly made out, what could be the parameter for settling the dispute?" There are some parameters to arrive at suitable arrangements for supply of gas, Justice RV Raveendran said. If you are not able to reach a suitable arrangement... We can direct you to arrive at a suitable arrangement or direct you to go for arbitration.

SC JUDGE RAVEENDRAN WITHDRAWS FROM THE CASE

In a dramatic turn in the Ambani brothers' gas dispute case, Justice R V Raveendran, a senior Supreme Court judge on Wednesday withdrew from the Bench hearing it saying his daughter is associated with a solicitors firm advising the Mukesh Ambani group on other global projects. A new Bench will be constituted on Thursday to hear the high-voltage case between Mukesh Ambanis RIL and Anil Ambani's RNRL relating to pricing of gas from K G Basin.

"I am rescuing myself from hearing this matter since I came to know only yesterday that my daughter is associated with a solicitors firm which is advising the Mukesh Ambani group in other matters relating to projects of global acquisitions," Raveendran said when the matter came up. The judge said that he came to know that law firm AZB partners in Bangalore with which his daughter is associated since September 1 this year is advising the Mukesh group in other projects. The Bench headed by Chief Justice K G Balakrishnan adjourned the matter and decided to hear the matter afresh by constituting another bench tomorrow. Justice Raveendran said, "The issue is my daughter is associated with a firm which is advising one of the parties in another project and I would not like to hear the matter". "My conscience is clear and I feel that justice should not only be done but seems to be done. That is the tradition of this court," he said. "I am sorry that six days of valuable time of this court has been wasted," he said adding, "I wish that somebody should have brought to our notice earlier about my daughter's association with the firm." Justice Raveendran, while rescuing himself, said "till now only RIL was advancing the arguments and RNRL has not started. So it is not late to dissociate myself from hearing the matter." Senior counsel Harish Salve and Ram Jethmalani appearing for Mukesh Ambani group RIL and Anil Ambani's RNRL respectively persuaded Justice Raveendran to continue hearing the matter but he declined to do so. Both the advocates told the Chief Justice if Justice Raveendran rescues himself, then he along with Justice P Sathasivam can continue hearing the matter. However, the CJI said, "In the beginning I had said that this matter should be heard by a three-judge bench. The court which decided to hear the matter afresh by constituting a bench tomorrow said that RIL would complete its arguments by November 12.

When the hearing had started on October 20, Justice Raveendran had offered to withdraw from the Bench, saying he had equal shares of both RIL and RNRL but the lawyers had said he should continue hearing the case.

THE POSSIBLE SOLUTIONS

Though a quick end to dispute isnt likely, the final solution could be any of these.

Its Mukesh who committed to the MoU that now binds him to supply gas at the price and quantity Anil wants. Since by Mukeshs own admission his company or the government were not part or privy to the MoU, it is he or RIL who should compensate the government for loss of revenue from the supply of gas to Anil at $2.34/mmBtu. Downside: Power companies currently buying gas at $4.2/mmBtu could contest differential pricing as anti-competitive.

RNRL gives up its demand for $2.34/mmBtu price, but continues to have claims on 28 mmscd gas share from KGD6 as well as 40% share in future gas discoveries by RIL. Downside: Having been unwillingly drawn into the brothers feud, the governments strongest attack is going to be on Anils claim on future discoveries. Softening that stance wont be easy or quick.

Allow complete freedom to RIL to price gas and repeal the system of government approval of gas pricing formula. Caveat: RIL could continue to supply gas to RNRLor even NTPCat $2.34 mmBtu, but its pricing could go much higher than $4.2 to some buyers just as it could supply gas to itself at less than $2. Will that be fair?

The Supreme Court could annul the provisions of the MoU that deal with gas sharing and supply. The court could also ask RIL to compensate RNRL for non-supply of gas at $2.34/mmBtu, but at a formula that doesnt hurt RIL too much. Downside: RNRL becomes a shell company and ADA groups new gas-based plants (Dadri and Shahpur) face delays and or uncertainty.

It is comprehensible that the Supreme Court is willing to direct the two corporate tycoons to go for arbitration. But only future proceedings will tell what takes place next in this Indias biggest corporate battle ever.

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