Mahabharata in Polyester

by McDonald, Hamish

  The optimistic view among shareholders had been that India now had the benefit of two Ambani empires. But could they live with each other?

  21

  The Ambanis apart

  There were now two Ambani empires. But had the entrepreneurial drive of Dhirubhai been dissipated? Each of the brothers set out to show the world that the spirit lay with him.

  Mukesh had the core of Reliance Industries, with its oilfield to textiles vertical production chain. He sat in the old Maker Chambers IV corporate office in Nariman Point. He even got around in the same style of working clothes that Dhirubhai favoured: a white safari-type shirt (of a polyester blend) and dark-blue trousers. And there’d been a metamorphosis in the persona he showed to the world. In the struggle with Anil he had often seemed defensive – even depressed, to some close acquaintances – and reactive to Anil’s tactics. But in the months after the settlement Mumbai, or at least an inner circle around the Ambani family, saw a more confident Mukesh emerge. He began giving extensive interviews, looking backwards to his upbringing and business apprenticeship under Dhirubhai, skating over the rift with Anil and giving grand outlines for the expansion of Reliance.

  What struck many of his interviewers was his grasp of technical and market detail and an orderly mind setting out in direct, clear language the progress markers for this expansion in terms of funding and deadlines. Some began to look back at Dhirubhai’s last years and reappraise Mukesh’s role. Had much of what was attributed to the father – like the ‘dream’ of Indians making a cell phone call for the price of a postcard – actually been the vision of the son?

  Along with this came some of the ambivalent perceptions of Dhirubhai. One acquaintance spoke of Mukesh as another ‘Machiavelli’ who continued the Reliance modus operandi established by Dhirubhai, including the ‘dark side’ of seeking out the weak points of rivals and potential obstacles that could be created for them – although Mukesh himself was to claim that this side of the business had been shed in the split.

  More comfortable in himself, Mukesh spoke more of his own family and acted as host for social gatherings, bringing in his own Bollywood crowd (which notably excluded the Bachchans). He was seen dancing at his parties and generally shedding inhibitions about being rich and showing off his wealth. Construction began in 2007 of a new home, to replace his apartment in the old Sea Wind building. Set on a hillside on Altamount Road, the new building was named ‘Antilla’ after a mythical island and would rise the equivalent of sixty normal storeys or 173 metres, although its high ceilings meant it had only twenty-seven floors. It was to have a helipad, six floors of car parking, a mini-theatre and health club, and would house Mukesh’s own family, Kokilaben and 600 guests and staff. Many reports said it would cost $1 billion, even $2 billion, although Mukesh insisted it would cost less than $100 million. The initial building contractor, Australia’s Leighton group, dropped out because of constant, costly modifications to the plans. In 2007 Mukesh bought an executive jet the size of a small airliner, an Airbus A-319, fitted out to accommodate up to twenty-two passengers instead of the usual 150, at a reported cost of $60 million. It seemed Mukesh was not afraid of the tax inspectors or underworld extorters, unlike many of the city’s lesser rich.

  • • •

  Even before the split, Mukesh had begun work on a vast new project to increase the market share of Reliance’s established petroleum business. Jamnagar was already the world’s third biggest refinery. Talks had begun with the American industrial construction group Bechtel on a doubling of its capacity, to a total 60 million tonnes a year. In early 2006 Mukesh returned to a familiar path for raising capital. He floated a new Reliance Petroleum and went to the markets with an initial public offer to raise the Rs 150 billion or $3.4 billion required. The issue received a ‘frenzied’ response from everyone, from small retail investors to big institutions, and was oversubscribed by a factor of 51 times.

  It was helped by two fortuitous pieces of news just before the share offer opened for subscription. The American oil major Chevron was going to take up 5 per cent of the new Reliance Petroleum, with an option to go up to 29 per cent, and was listed as a co-promoter of the issue. The Jamnagar refinery, it seemed, would fill an emerging shortage in Chevron’s global refining capacity, particularly in the American market where environmental standards had deterred new investment. Initial reports had greatly exaggerated the Chevron investment, saying that the American giant was taking 29 per cent immediately.

  Also, Reliance had made an oil find in the Godavari basin, near to its big gas field where it was pouring $2.75 billion into developing production wells and pipelines. At some stage, it was widely expected to move to fully take over and absorb the petrochemicals affiliate IPCL. Mukesh had also signalled a massive expansion into fertiliser production, using captive gas as feedstock and getting a far higher return for value added than by burning the gas for power. Mukesh’s group was also feverishly extending its retail network, to end a dependence on the Indian Oil Corporation’s nationwide chain of petrol stations for sales of its refined products. This deal had subordinated supplies from Jamnagar to IOC’s own input and was due to end in March 2009. By the end of 2006 the group had built 2500 new service stations and was said to be planning 3400 more by 2009.1

  But it was not just ‘stick to your knitting’ for Mukesh, who quickly announced plans for a massive diversification into urban development, agribusiness and biofuels on a scale that might have been dismissed as megalomanic – if it had not come from someone with his reputation for implementing complex projects and with Reliance’s multibillion-dollar cash flow.

  In January 2006 his group announced a large-scale move into retailing and food logistics, spending up to US$5 billion by 2011 on setting up a nationwide chain of supermarkets under the brand Reliance Fresh, with a supply chain of transport, food processing units and cold stores stretching back to farmers. Typically, the move showed Reliance jumping into a sector largely protected from international competition. Big foreign supermarket chains had been clamouring for a lifting of foreign investment controls, allowing them to set up in India. The rules had been relaxed, but only for single-brand outlets. None of the existing Indian retail chains had anything like the financial muscle to compete with Reliance. Mukesh was talking of opening superstores eventually in 1500 towns and cities, setting up eighty-five logistics centres and 1600 farm-supply centres providing advice, credit, seeds, fertiliser and fuel to growers as well as buying their produce. The network would create up to a million new jobs, as well as lifting farm incomes as much as ninefold and lowering consumer prices by cutting out the middlemen. Besides generating US$25 billion in annual sales, this ‘Wal-Mart in India’ could create US$20 billion in farm exports.2

  As Mukesh explained it, the scheme had to be based on agriculture, on which 60 per cent of Indians depended, although it accounted for only 28 per cent of gross domestic product. India’s fragmented farm holdings could be integrated into the national – even global – economy by a new generation of logistics. By getting cost-competitive, safe food to Indian consumers, it would be a natural leap to world markets.3

  Throughout 2007 and 2008 Mukesh extended his retail plans. His group launched the first of a hundred ‘Reliance Trends’ shops selling modern international clothes from the new shopping malls springing up on the fringes of Indian cities. It announced plans to open fifty to sixty ‘i stores’ selling Apple computer products and another 150 ‘Reliance Digital’ stores selling home appliance, consumer electronics and IT and telecom products.

  Mukesh’s second grand scheme was the development of two new satellite cities on the fringes of Mumbai and New Delhi, each with a population of five million people with average incomes of $5000 a year. This was enabled by legislation passed by the Indian parliament in 2005 under the Congress-led government, allowing private developers greater freedom to set up ‘special economic zones’ modelled on the coastal factory regions carved out by the Chinese communist leader Deng Xia
oping in the 1980s and 1990s.

  Partly in partnership with a Maharashtra state agency, the City and Industrial Development Corporation (CIDCO), Reliance quickly moved to acquire 15 000 hectares of farmland and small settlements at Navi Mumbai, a district running from the head of the large bay lying to the east of the old city and extending down the eastern side of the bay. Plans were unveiled for new air and sea ports and a 20-kilometre bridge and tunnel link across the bay to connect it with old Mumbai. According to Anand Jain, the land was acquired at prices about a thousandth of those for sites in downtown Mumbai. With the city’s 14 million people hemmed in by mountains to the north-west and dense settlements to the north, this south-eastern corridor was virtually the only way for India’s financial centre and biggest port to expand.

  Mukesh had gained the central position by buying out a fellow Gujarati entrepreneur, Nikhil Gandhi, from his company Sea King Infrastructure Ltd, which had won a tender to set up a joint venture development zone with CIDCO in 2003. The state agency had 4500 hectares of land but no funds. Sea King had won a 74 per cent share of the joint venture in an international tender, but opted to sell out to Mukesh around the start of 2005 rather than attempt to marshal the promised funds. After the new Congress government took power in 2004 and announced its special economic zone policy, Mukesh applied to set up a zone covering 11 000 hectares and adjoining the one covered by the CIDCO joint venture.

  A fortuitous political change brought a friendly face into an important position in July 2005. A former Chief Minister of Maharashtra, Narayan Rane, quit the Shiv Sena party and joined the Congress-led state government and was immediately promoted to the key position of Revenue minister. By the end of 2005 revenue officials and the local administrator or collector were feeling top-down pressure to approve land acquisition. At central level, the Commerce minister, Kamal Nath, also gave Mukesh the development authority for 11 300 hectares, covering forty-five villages. However, by mid-2006 the central government’s Ministry of Urban Development had misgivings about the requirement for compulsory acquisition of land from so many existing small owners. When the chairman of CIDCO raised the same objection, he found himself transferred out of his job three days later.

  In Haryana, the wealthy farming state just west of Delhi, Reliance moved to acquire about 10 000 hectares of land close to the satellite town of Gurgaon, famous for its collection of call-centre and information technology businesses and, along with Bangalore, symbolising India’s rapid advance into service and knowledge sectors. With investment of up to Rs 400 billion, this Reliance special zone would be another enclave of prosperity, with its residents engaged in knowledge industries and low-polluting manufacture. A smaller zone was also being set up in Gujarat, adjacent to the oil refinery at Jamnagar. The employment for these well-educated residents would be provided by international companies eager to utilise India’s human resources but so far frustrated by the country’s decrepit infrastructure and limited housing, according to Mukesh’s vision.4

  The third project of Mukesh was the Life Sciences Centre in Mumbai, focused on growing biofuels from cellulose and plants like jattropha on a commercial scale. He described this as aimed at engineering a second Green Revolution, an industrial fallback for a world in which petroleum prices are prohibitive. An associated activity was to pioneer usable biomass generators of electricity for dispersed farms and households. Mukesh wanted Indians to ‘go wireless’ for their electricity as they had for their telephones.5

  • • •

  For his part, Anil made a more direct, emotional appeal for the family legacy, naming his share of the inheritance the Anil Dhirubhai Ambani Group. His friends describe him as ‘energised’ by the split. ‘He’s got his freedom and he wants to show what he can do to the world,’ one said. At the same time, he must have been aware that without the massive cash-flows of the Reliance petroleum and petrochemicals businesses, he had much less margin for mistakes than Mukesh.

  His most spectacular early success was to carry through the launch of Mukesh’s brainchild, the cellular telephone and data operation, now renamed Reliance Communication. India was fast gaining on China’s spectacular lead in cell phone connections and by September 2007 had a total of 200 million subscribers, adding 7.6 million more every month. Although about three-quarters were on the GSM technology, Reliance and others operators like Tata Teleservices that had adopted the CDMA standard were offering their customers handsets that worked on both technologies. Anil was getting up to a million customers a month for special handsets made in China that his company was selling for less than $20, substantially below cost, in the drive for market share.

  The younger brother also expanded the internet-based side of the business. Acquisitions helped expand the range of platforms and delivery systems. In July 2007 Anil agreed to pay $300 million for Yipes, an American company specialising in ethernet systems (technology that links local area networks by wireless data). He promoted a chain of internet outlets, branded as Reliance World, in which customers could access the internet and carry out financial transactions, including sharemarket trades or check their investment portfolios, and got the same facility installed at the fast-spreading Barista coffee shop chain, which was introducing Italian-style coffee drinking to the Indian middle class. And Anil’s financial subsidiary, Reliance Capital, by dint of clever marketing of popular services, was becoming one of the biggest funds management institutions in India.

  With his close Bollywood connections, Anil also pushed into content and distribution, acquiring the cinema chain Adlabs, which ran some of the best-known movie houses in Mumbai and other cities, with a total of 125 screens. His ‘Big FM’ radio network had stations operating in seventeen cities by mid-2007 and was reported to have licences for another twenty-three areas. Through Reliance Capital, Anil gained a 32 per cent stake in the cable/satellite media house TV Today, controlled by the India Today magazine group of Arun Purie. Anil also had interests in TV18, NDTV, Zee Enterprises and UTV Software. On the internet, Anil launched a gaming portal named Zapak.com and a social networking website called Big Adda. Towards the end of 2007 his group was also moving to launch a direct-to-home satellite broadcasting service called Reliance Blue Magic and an internet-based TV channel. If there was a logic to this spate of entertainment and news acquisitions, later grouped under the brandname ‘Big’, it was to gain a lock hold on content for his media channels.

  Almost immediately, his venture into politics started to look like a liability. Anil’s two biggest projects in Uttar Pradesh – the giant gas-fired power station at Dadri and a special economic zone at Noida, an industrial zone near Delhi – were hostage to the state’s turbulent politics. In January 2006 several media groups in New Delhi were sent recordings said to be based on wiretaps of Amar Singh over a ten-week period. As well as picking up salacious conversations with young film actresses, the recordings contained conversations allegedly between the Samajwadi Party leader and Anil, in which business deals and favours were discussed in blunt detail. The Uttar Pradesh Chief Minister, Mulayam Singh Yadav, was also on record, purportedly, discussing an approach to a judge about a special economic zone at Noida.

  Delhi police found that a private detective, Bhupendra Kumar, had gained the cooperation of Anil’s own telephone company to carry out the interception on the basis of forged letters, one from a senior police officer requesting permission to run a wiretap and the other a faked response from a senior Home Ministry official, R. Narayan Swamy, giving consent. The letters were adaptations of real letters between the two officials on an unrelated matter. Kumar had been approached by a person identifying himself as a police officer and paid a ‘handsome’ amount for being ‘used like a pawn’. Reliance Infocomm provided Kumar with a parallel line from Amar Singh’s number to his cell phone. The operation went on until a company official realised it was the politician’s telephone involved and told superiors. They passed the word to Mulayam Singh Yadav, the top Samajwadi leader and Chief Minister of Uttar Prad
esh, who immediately went public, claiming a Congress conspiracy. In February 2006 Amar Singh sought and obtained a Supreme Court injunction barring the media from playing recordings of the alleged conversations, although copies on compact discs were in wide circulation.6 In a rambling interview with NDTV, Singh said the tapping was orchestrated by Congress and a ‘Mumbai-based industrialist’; that the recordings might have been patched together from innocuous conversations; and that the judge mentioned might not have been a sitting judge.

  Anil resigned his Rajya Sabha seat in mid-2006, but his connection continued to dog him. In May 2007 the Samajwadi government of Mulayam Singh Yadav was voted out of office in Uttar Pradesh. The state’s new Chief Minister, Mayawati (who uses one name only), immediately dissolved a state development council on which Anil sat, under the chairmanship of Amar Singh. She announced that clearances for Anil’s Dadri power project would be reviewed. A dissident member of Samajwadi, Raj Babbar, and the old Ambani foe, former Prime Minister V.P. Singh, had raised grievances by local farmers during the election campaign. Mayawati’s cabinet also asked the central government to withdraw approval for the special economic zone proposed by Anil’s group for a 485-hectare site near the industrial zone Noida, adjacent to the national capital region. The request was made on the grounds that the area was bisected by a road when such zones had to be on contiguous land. Anil had some political spadework to do.7