Mahabharata in Polyester

by McDonald, Hamish

  • • •

  Anil’s biggest challenge was coming up with new projects. He was out of favour with the Congress party, which was in power at central level. On every opening, it seemed, he was coming up against the superior firepower and skills of his brother. As we have seen, Mukesh was not delivering on the promise that Anil, perhaps naively, thought he had gained of supply of natural gas from Krishna–Godavari at less than market price for the Dadri power station.

  Anil lost out in bids for the modernisation of passenger terminals at the Delhi and Mumbai international airports, although not to Mukesh in these cases. In January 2006 Mukesh outbid Anil for a prime 7.5-hectare urban redevelopment site at Bandra–Kurla in Mumbai, which city authorities had zoned for hotels, shopping, offices and a convention centre. The price set a record for property outside the Raj-era centre of old Mumbai. But after contracts were signed in September that year, it emerged that Mukesh’s group had been allowed double the floor-space ratio set in the tender, vastly increasing the potential profitability. In May 2007 Anil’s Reliance Communications and Infrastructure launched a legal case against the Mumbai development authority in the Bombay High Court.

  Anil’s group also started litigation after being disqualified for bidding for Mumbai’s planned new harbour crossing, a 22-km road-rail bridge from the old port district at Sewri to Nhava, the entry point for the Navi Mumbai area where Mukesh was planning his vast special economic zone. Mukesh’s group was regarded as the most prospective bidder for this project. Among some other powerful consortiums, the two brothers were also likely to contest the tender for a new international airport at Navi Mumbai. The airport would be adjacent to the Reliance special zone, and winning the tender along with the harbour crossing would give Mukesh a dominating position in Mumbai’s expansion.8

  In January 2007 Anil suffered another big disappointment. The Hong Kong-based Hutchison telecom group wanted to sell its two-thirds stake in its Indian cellular telephone venture with Essar. Gaining control of this network would have instantly given Reliance Communications the top market share, as well as bringing kudos to Anil as a deal-maker. In the bidding, Anil was arrayed against powerful rivals, the British-based Vodafone, the Hinduja group and the minority partner Essar. Vodafone clinched the purchase with an offer of $11 billion, and the sale was approved by the government in April 2007 – against spoiling tactics used by disappointed bidders, as Vodafone’s chief executive, Arun Sarin, revealed later. Speaking to a gathering of fellow Indian Institute of Technology alumni in Silicon Valley in July 2007, Sarin said he became aware of lobbying to ‘crater the deal’ at high level:

  I really did not expect people – the ‘good and great’ of India – to be calling cabinet secretaries, ministers, to say: ‘You have to unwind this deal, because we want a piece of it’ … The billionaire losers’ club was trying to unwind the deal. What was fascinating was that there was absolutely no transparency to the process … What I didn’t count on was that the bureaucracy would kick in with this kind of evil spirit from our competitors who had lost.9

  After his remarks were picked up by a newswire and reported around the world, Sarin issued a statement praising Indian authorities for the ‘speed and thoroughness’ of their scrutiny, which he said was a positive example for investors. At no point did he specify which rivals he meant.10

  • • •

  As well as fighting each other and various business rivals, both Ambani brothers increasingly found themselves in the firing line of social protest. Their business activities were no longer at one or more removes from consumers. The size of their projects affected surrounding communities. Predictably, land provided the most volatile issue. The accusation of ‘land grab’ was flung around freely, and one petitioner to the Indian president, A.J.P. Abdul Kalam, even accused Mukesh of setting up an ‘Ambani Desh’ – an extraterritorial enclave of ‘Ambaniland’ inside India.11

  In Haryana, some of the most powerful politicians based among its famous Jat caste of well-off farmers came out against Mukesh’s special zone. Among them were Kuldip Bishnoi, son of the former Haryana Chief Minister Bhajan Lal, and Ajay Singh Chautala, both members of the Congress hierarchy in the state. They claimed that Reliance was getting a choice 688-hectare parcel of land near Gurgaon for Rs 3.6 billion when it was worth Rs 50 billion. As well as countering their litigation, Mukesh responded with a widely publicised ‘corporate social responsibility’ program, providing medical and dental services to villagers with mobile clinics emblazoned with the Reliance name.12

  At Navi Mumbai, Mukesh was opposed by an embarrassingly wide array of public opponents. After the earlier opening of the Jawaharlal Nehru container port at the head of the bay, many of the port’s associated professionals and businessmen in stevedoring, customs broking, logistics, warehousing and the like had seen the possibilities of setting up operations in Navi Mumbai and bought parcels of land there. The 26 000 residents of the region’s forty-five villages became well aware of the risk of eviction with little compensation, and blocked attempts to survey their land. From time to time they held sit-down protests on roads through the area, although these were largely unreported in the mainstream Mumbai press. By early 2007 some ministers in the state government were getting nervous about the political risks and began quizzing Revenue minister Narayan Rane about the level of compensation for land.

  By then there were seventy-two proposals for special economic zones in Maharashtra, but only seven were contentious, the Reliance project the biggest among them. In August 2007 the Shiv Sena party latched on to this discontent as a cause to help it return to power and to punish their defector, Narayan Rane. Its activists whipped up a large protest among farmers in the Raigad area, which turned into rioting in which scores of cars and buses were destroyed.13

  In New Delhi, the Commerce Ministry began tightening up application of the rules on special economic zones, which were being proposed all over the country. It said it would extend and confirm approvals only for those coming within its 5000-hectare cap. Mukesh’s two biggest zones, at Jhajjar in Haryana and Raigad in Maharashtra (coming under the name of a subsidiary called Gujarat Positra Port Infrastructure Ltd, but by now widely known as the Maha Mumbai SEZ), were both around 10 000 hectares. With in-principle approval for Navi Mumbai expired, Mukesh was given a year’s extension but told to cut the size in half, to negotiate the consent of landowners to a sale and to keep the state authorities out of the process. However, within several months, the Commerce Ministry was going full circle, saying it was prepared to approve zones above the 5000-hectare limit on a ‘case-by-case’ basis.14

  Facing a flurry of litigation from landowners, Mukesh and other developers applied for the Supreme Court to gather up all cases and hear them as a single matter, setting principles for land acquisition for the whole country, which Chief Justice K.G. Balakrishnan decided to do. By then Anil’s proposed zone at Noida had been turned down by Mayawati’s Uttar Pradesh government. There was also legal disarray affecting Mukesh’s two adjacent zones in Raigad. His partner in the original zone, the development agency CIDCO, was opposing its own government’s move to notify the compulsory acquisition of 4000 hectares of land, affecting twenty-one villages. The agency took action in the Bombay High Court after being named respondent itself to public interest litigation (petitions to courts by civil society groups, not necessarily party to disputes) mounted by a farm activist, Datta Patil and others.

  Mukesh’s retail venture had also met some fierce reaction from traditional vendors feeling threatened by his large-scale, low-margin fresh food stores. In May 2007, at Ranchi, in the impoverished eastern state of Jharkhand, petty traders and vegetable shop owners attacked three of the five new Reliance Fresh outlets, smashing glass and pulling down shelves, and crowds began looting the shops. Warnings of similar protest came from left-wing politicians in nearby West Bengal. Four months later, Mukesh had to close his ten stores in Uttar Pradesh and lay off 870 staff in the face of threats.

 
; Along with other oil refiners, his Reliance group was also subject to periodic allegations in parliament and the media that it was selling petroleum fractions like naphtha, benzene and toluene to non-industrial customers, to be mixed in with petrol and sold to unsuspecting vehicle owners. With two-thirds of all petrol stations and natural gas dealerships being owned by politicians and their families, described as a new class of ‘petro-kulaks’, scrutiny was lax. The more obvious suspects were the public-sector refineries rather than the private- sector giant.15

  The power of the petro-kulaks meanwhile set back Mukesh’s plans for a nationwide network of 5000 service stations. The rival outlets franchised by the public sector refiners continued to enjoy subsidies permitting retail prices of petrol and diesel well below cost, thanks to the political clout of the politicians and their friends who owned them. With world prices of petroleum spiralling in the middle of the decade, Mukesh was forced to halt expansion of his retail network once it had reached about 1300 outlets and, of these, about 200 were closed by late 2007.16

  Anil’s Reliance Energy was also a target of grassroots protest. In the Thane district of Maharashtra, local farmers were complaining that the company’s 500MW coal power plant at Dahanu was turning their land into a wasteland, allegedly in part because the operators were switching off electrostatic precipitators in its smoke stack at night, allowing massive quantities of fly ash to be released.17 In Delhi, electricity distribution had been given to private companies, known as ‘discoms’, in July 2002, about the time Dhirubhai died. Anil’s company set up two discoms and soon began installing new electronic meters with its customers, replacing older electromechanical meters. By 2005 activists were claiming that the new meters were charging households more than the published rates, yielding high profits for the discoms without any great increase in supply; the activists were demanding independent testing of the meters. As one influential economist noted, the discoms had actually brought transmission and distribution power losses in Delhi down from a staggering 63 per cent to 50 per cent in three years; but customers were now only more sharply aware how some users were being slugged to make up for power thefts. A lesson for Anil was that ‘it is not enough to make great presentations and wow everybody with financial deal-making. Running a business requires focus, sustained application, team-building and meeting customer expectations.’18

  • • •

  But the brothers’ biggest enemies were each other.

  On 3 February 2006, about seven months after Kokilaben’s settlement of June the previous year, the two brothers signed an agreement between Reliance Industries and Reliance Natural Resources, setting a price and supply arrangement for natural gas to flow from the group’s Krishna–Godavari field in the Bay of Bengal to Anil’s planned new power plants at Dadri in Uttar Pradesh and at Patalganga, inland from Mumbai. They were soon fighting over its interpretation. Anil’s group alleged that Mukesh’s Reliance Industries was ‘systematically violating every major commitment of the June 2005 settlement’. In particular, Mukesh’s group was seeking to dishonour the agreement on gas supply at agreed prices (which were to be linked to the sale price Reliance had reached with the central government’s National Thermal Power Corporation (NTPC), an offer not followed up by a firm contract as world petroleum prices spiraled higher.

  In response, Mukesh’s spokesman at Reliance Industries said the issues raised by Anil’s group were ‘an attempt to divert attention away from the shockingly petty acts of harassment of RIL employees at the Dhirubhai Ambani Knowledge City’. Things had indeed got very petty. Anil’s Infocomm had cut off broadband connectivity to all of Mukesh’s companies, causing an immense disruption to its routine business and requiring it to shift to another internet service provider. At the Knowledge City campus, the two groups had resorted to blocking each other’s employees from using canteens, parking areas and banking terminals in their own locations. Even the Hindu temple on campus was reserved for the Anil group’s staff.

  The Petroleum Ministry, by then under ministerial direction by Murli Deora, the veteran Congress politician who had been Dhirubhai’s colleague in his yarn-trading days, had also intervened in a way that upset the gas supply deal – in Mukesh’s favour. It said the gas price was too low and had not been set through ‘arm’s-length’ sales negotiation. The government was a party to the deal by virtue of its production-sharing contract with Reliance covering Krishna–Godavari. By the prevailing standards of domestic gas supply the price was far too generous to the buyer and less than half what Reliance was charging for gas from its older Panni/Mukti and Tapti gas fields in the Arabian Sea.

  Anil’s side countered by alleging that the Mukesh group had been ‘deliberately misleading’ the Petroleum Ministy in order to ‘renege’ on its gas supply commitment. The price had been set in arm’s-length negotiations in the first half of 2004, the Anil group claimed – although how that could have happened when Reliance Energy was 41 per cent owned by Reliance Industries, which supplied its chairman and six other directors, was not explained. It was linked to the tentative deal signed around the same time between Reliance Industries and the NTPC, which had called open and international tenders for supply of gas for two new power plants in Gujarat. Reliance’s offer for its Krishna– Godavari gas had won this bidding.

  But it was not just Anil’s deal that was in dispute. Mukesh was in dispute with NTPC. After signing the gas supply deal with the government generator in May 2004, Reliance Industries had dragged its feet and had been taken to court by NTPC in December 2005. The prevailing price of gas had doubled inside India, and obviously it was in Reliance’s interest if its offer could be amended.

  The ministry’s intervention immediately put a spoke in Anil’s wheel. Without an acceptable gas supply arrangement, the ministry was not going to give clearance for his group to start laying its Rs 160 billion ($3.6 billion) pipeline from Krishna–Godavari to the Dadri project, which would also supply domestic and industrial gas for numerous cities along its path.

  In November, Reliance Natural Resources Ltd of the Anil group instituted a case in the Bombay High Court, asking it to direct Reliance Industries to implement the court order of December 2005 that enforced the demerger settlement, in which Anil claimed there was an agreement for the supply of gas to his Dadri and Patalganga plants. Thus a little more than four years after their father had died, and seventeen months after their mother laid down the family settlement, the two brothers were in litigation with each other in court.

  The row over gas pricing was central to their rivalry. It put Murli Deora in an awkward position. Asked by Congress president Sonia Gandhi to be Petroleum minister, he had tried to refuse: better to stick to the familiar role of Congress fund-raiser. But to no avail. His main task was to adjudicate a national gas-pricing formula, with a decision rewarding either Anil or Mukesh. Anil was insisting on the low cost-plus price he believed had been promised. Mukesh was arguing for parity with the landed price of imported gas: world petroleum price, plus shipping, plus 30 per cent duty. The difference was billions of dollars in cash flow. The argument and the lobbying were internecine. ‘It’s all about the brothers,’ officials were complaining to their confidants.

  In August 2006 Manmohan Singh met Deora and at his request, so it was reported, decided to relieve him of the decision. The issue was handed to an ‘empowered group of ministers’ under the chairmanship of the External Affairs minister, Pranab Mukherjee, the same Congress veteran who had been so helpful to Dhirubhai in the 1980s.19

  Furious lobbying began, with Anil marshalling the Samajwadi and Communist Party (Marxist) to oppose ‘goldplating’ of the Krishna–Godavari project, while Reliance warned that its delicately poised financing could be upset, creating a two-year delay in commencement of gas production.20 The decision, announced on 12 September 2006, was interpreted as both a blow to the free market and a capitulation to Mukesh, since, as the Supreme Court later noted, it was based on a formula very close to one suggested by Reliance.
It set a price of $4.20 per million British thermal units, based on a five-year peg to an oil price of $60 a barrel, a hefty slug above the $2.34 that Anil claimed to have been promised, setting Mukesh in a position to dominate downstream industries, including the vital sectors of power generation and fertilisers.21

  • • •

  Far from resolving the question, the ruling only intensified the rivalry between Mukesh and Anil and focused attention on the looming legal cases in Mumbai. The feud between the two billionaire brothers became a talking point in business circles worldwide.

  The most obvious competition was to see who could lift the share prices of his group’s companies the most and thereby increase his own paper wealth in the global rich lists put out by prestigious business magazines. In late 2007 the share prices of companies like Mukesh’s Reliance Petroleum (the new offshoot set up for the expansion of the Jamnagar refinery) or Anil’s Reliance Energy and Reliance Natural Resources shot up by multiples of the gains seen in the overall sharemarket index. At the end of October 2007 it was even reported that these high share prices had made Mukesh temporarily the world’s richest man, his net worth on paper being estimated at $63.2 billion, above that of Microsoft founder Bill Gates or the Mexican tycoon Carlos Slim Helu.22

  There was speculation that both Reliance groups were using their many small investment companies to bid up the prices of these newer offshoots, either to solidify control of them or to list the share prices to raise more funds through share offerings. A large degree of hype and anticipation surrounded businesses that were still quite nascent.

  At that point, Reliance Petroleum was still a year away from the start of actual refining in late 2008, and Chevron had yet to decide on exercising its option to buy a 29 per cent stake. Yet it was trading at twenty-five times the earnings per share expected in its first reporting year, putting it among India’s fifteen biggest companies by market value. Anil’s Reliance Energy had a share price valued at fifty times earnings per share, and his Reliance Natural Resources had a price-earnings ratio of 300 at one point.23