GAS WARS: CRONY CAPITALISM AND THE AMBANIS

by Paranjoy Guha Thakurta

  In the 1970s, an upstart crashed into this élite club. The newcomer was initially greeted with derision but as years passed, his corporate empire grew and grew. He made no secret of his ambition to become the biggest of them all. The old guard decided to strike back. To their amazement and then shock, he retaliated, using similar below-the-belt methods that the country’s established capitalists had perfected over the years. He was, however, cannier, and manipulated the system to greater effect than anyone had done before him. By the beginning of the 1990s, as the working of the Indian economy was liberalised, Dhirubhai Ambani had become the most feared (and envied) businessman in the country. Almost no industrialist had the guts to take him on. Most scampered away if they thought they might cross his path. The few who chose to fight it out (like Nusli Wadia and Kapal Mehra) were humbled and lost heavily.

  Dhirubhai’s sons learnt their lessons in management and entrepreneurship under his tutelage. The brothers seemed to complement each other; as a team, they could perhaps have performed better than their father. But their personalities clashed. By delving into some of the causes and effects of their differing characters, it was possible to perceive the palimpsest on which the final fight over natural gas off the Krishna-Godavari basin was to take place.

  Dhirubhai had tried to create a corporate conglomerate (with complex and intricate financial structures and cross-holdings of shares) which could not be easily broken up; he hoped this would oblige the brothers to cooperate with each other. The siblings divided the work among them, especially after Dhirubhai suffered a stroke in February 1986 which left him incapacitated for several months. While he continued to remain the main strategist, over the next few years, the introverted, almost shy, Mukesh emerged as the operations guy; the man who set up mega-industrial projects on time and within budget and ensured that these ran efficiently. Anil, the extrovert, became the ‘face’ of Reliance; he looked after public relations, corporate affairs, government liaison and marketing. In addition, the younger brother was projected as a financial whiz-kid of sorts.

  The tensions between the two brothers mounted through the 1990s. By the beginning of the 21st century, it was clear to insiders that the brothers would part ways and that the sprawling Reliance business empire would get partitioned after their father’s death. One of the first signs that something was amiss came in 1991, when Dhirubhai promoted Mukesh as vice-chairman of RIL, while Anil remained the company’s joint managing director. This was the father’s way of clearly indicating his heir apparent. The move sent out strong signals to the outside world. It also marked the public beginning of the feud between the two brothers.

  After Dhirubhai’s stroke, Mukesh sought to take full charge of the group’s activities. He inducted his ‘friends’ and loyalists into the group, principal among whom were Anand Jain (AJ), a schoolmate of his, and Manoj Modi (MM), who had studied in college with him. The two became his ‘arms’. Anil too inducted his own men; for instance, he hired Anthony (Tony) Jesudasan in Delhi, who had earlier been working for the undivided group, to handle media relations and government liaison.

  Even before Dhirubhai had let the world know that Mukesh was his ‘heir apparent’ by anointing him RIL’s vice-chairman, there was another personal (and perhaps more important) reason behind Dhirubhai’s move. This was Anil’s decision to marry a controversial ‘Westernised’ film actress, Tina Munim, which drove a wedge between the father and his younger son. Tina was a glamorous celebrity. As a teenager, in 1975, she became Miss India and, later, she was adjudged a ‘Princess’ in an international pageant. By the age of sixteen, her first Hindi film, Des Pardes (directed, produced and starred in by Dev Anand) was a huge hit. She was a rising Bollywood star. More importantly, Tina was the archetypal ‘modern’ Indian woman, free in thought and action, carefree with a Bohemian lifestyle. Her clothes were considered ‘revealing’ by conservative standards and she had raised quite a few eyebrows because she made no bones about her live-in relationship with ‘superstar’ Rajesh Khanna. It is important to remember that all this was taking place in the 1980s.

  Anil is said to have met Tina at a party and couldn’t take his eyes off her. Later, he couldn’t take his mind off her either. He decided he wanted to marry her. There was, however, a social hurdle. For a conservative Gujarati family like the Ambanis, the relationship between Anil and Tina was just not on. It seemed there was no way the family would accept her as a bahu (daughter-in-law). Dhirubhai opposed the marriage. In fact, he tried his best to break it up. As in a typical movie plot, the father tried to scare Tina away. He used his clout within government investigative agencies, such as the Enforcement Directorate (ED), to carry out raids on her under the Foreign Exchange Regulation Act (FERA). In those days (and even now) film stars were/are regularly investigated for possible violations of foreign exchange regulations and income tax rules.1

  Despite his father’s emphatic objections, Anil put his foot down; he refused to budge from his decision to marry Tina. The younger son was also furious because he had been told that the ED team had ‘misbehaved’ with Tina. Insiders say that Anil threatened to leave the family if Dhirubhai didn’t accept her as his daughter-in-law. Close family friends stepped in to sort out the issue. After Dhirubhai realised that Anil was unlikely to buckle under pressure, he reluctantly consented to the marriage.

  Within the family, Tina was the ‘outsider’ while Mukesh’s wife, Nita, was considered the real bahu. For Dhirubhai and his wife, Kokilaben, Nita was the family’s first lady. Kokilaben had seen Nita at a Bharat Natyam dance recital, gone back home and told her husband that she had found the perfect match for Mukesh. After their marriage, over the years, Dhirubhai and Kokilaben came to depend on Nita for important decisions they had to take as a family: from designing their homes to the planning of residential blocks in industrial townships that were set up by RIL. In comparison, Tina played a role that was far less important. Even as tensions between the siblings and their spouses simmered beneath the surface, through the 1980s, Dhirubhai had more pressing preoccupations to deal with.

  As the Ambani patriarch fought his corporate battles with industrialist Nusli Wadia and newspaper publisher Ram Nath Goenka, he also had to ensure that government policies favoured his group and not the competition. As is common knowledge, even as corporate battles involving RIL raged, Rajiv Gandhi’s government lost the general elections in December 1989 and Vishwanath Pratap Singh became India’s prime minister. The V.P. Singh government had effectively thwarted Dhirubhai’s attempts to take over one of India’s leading engineering companies, Larsen & Toubro. The government, which was perceived as being particularly antagonistic to the Ambanis, collapsed in November 1990 in less than a year.

  By then, the image of the group had taken a beating in the media at home and abroad. The Reliance group was seen as one that had survived and prospered not through entrepreneurial acumen but as a result of political patronage. In May 1991, the Economist weekly of the UK published a survey on India entitled ‘Caged’ with a photograph of a caged tiger on the cover. This was just a month before the new P.V. Narasimha Rao government, with Manmohan Singh as finance minister, initiated policies of economic liberalisation. The author of the Economist survey, Clive Crook, singled out the Reliance group for criticism. He wrote that the group symbolised all that was wrong with India, how the country’s corporate captains took advantage of favourable regulations to build monopolistic empires. The system smacked of nepotism and corruption. The reference to his empire upset Dhirubhai. He reportedly vowed that henceforth the world would look up to Reliance. A few years later, he got his opportunity to set up the ‘world’s largest’ greenfield oil refinery at Jamnagar, Gujarat, on the west coast.

  The project became Mukesh’s baby. He was entrusted with the task of commissioning the refinery in record time as a world-class project. Jamnagar became the turning point in the history of the Reliance group. It was set up in record time, was technologically superior to other refineries, and was acknowledge
d by all global experts as a showpiece, a veritable jewel in the crown of the Ambanis. The refinery was formally commissioned on Christmas Day 2008.

  By the time Reliance Petroleum was merged with Reliance Industries through a process that started in March 2009, RIL had become not only India’s largest private sector company in terms of sales and value of assets but had also found a place in the Fortune list of 500 top global firms. By luck or deliberate strategy, or a combination of both, the execution of the refinery project in Jamnagar transformed Mukesh from an introvert into a confident entrepreneur, who no longer shied away from public appearances. He still had few friends, but interacted comfortably with the Who’s Who of India and the world and entertained them lavishly. By the end of the 1990s, Mukesh was truly convinced that he was the legitimate heir to Dhirubhai’s legacy, that he was the one chosen by his father to lead Reliance into the 21st century and make it one of the largest corporate groups in Asia and the world. His way of thinking became apparent when the group launched its telecom venture, Reliance Infocomm. Although it was said to be Dhirubhai’s dream to make voice calls on mobile phones cheaper than a 50-paise postcard, Infocomm was essentially Mukesh’s baby, with neither Anil nor any of his representatives on the company’s board of directors.

  The holding structure is worth looking at. Reliance Infocomm’s parent company was Reliance Communications Infrastructure Limited (RCIL) which held a majority stake. Mukesh and Nita indirectly owned 50.5 per cent of the company through nine holding firms, with 45 per cent being held by RIL. While Mukesh was Infocomm’s chairman and managing director, there were three other directors: Anand Jain, Manoj Modi, and Bharat Goenka (promoter of Tally Solutions, a computer software firm), all of them Mukesh loyalists. For Anil, the shareholding structure and composition of the board of Reliance Infocomm was a clear indication that his elder brother had sidelined him in favour of his wife Nita and those loyal to him. What infuriated Anil was that he was being treated as an unequal partner by his own brother in favour of his colleagues, AJ and MM. The rift between the brothers was widening.

  Anil felt his capabilities as a manager of the ‘external environment’—as a networker among politicians, bureaucrats and journalists when the Reliance group lurched from one controversy to another in the 1980s and 1990s—was not being recognised by Mukesh. Cultivating the media had become critical for the Ambanis in the 1990s for two reasons. First, Dhirubhai realised how his carefully built empire could be decimated by an aggressive media attack of the kind that took place during his battle with the Indian Express in the mid-1980s. Second, to gain global stature, Reliance had to get the right kind of exposure in the international media, quite unlike that given by the Economist in 1991. By the mid-1990s, there was no media organisation, and very few individual journalists, that were openly anti- Reliance. Anil and his key managers, including Jesudasan, carefully built relationships with journalists and editors. One notable example of media management was the manner in which the Indian Express, which was the most vocal and notable opponent of the Reliance group in the mid-1980s, gave up its campaign against the group and began supporting it. Sources close to Anil Ambani provided journalists, including the lead author of this book, important information when Ram Nath Goenka’s newspaper group was trifurcated after his death on 5 October 1991.

  Long before companies in the Anil Ambani Dhirubhai Group (ADAG) invested in media companies like TV Today, and before the telephone conversations of lobbyist Nira Radia (one of her major clients was Mukesh Ambani) entered the public domain, RIL had worked out a complex financial deal involving the Network 18 group headed by Raghav Bahl and Ramoji Rao’s Eenadu group and supported television channels like NewsX through generous inter- corporate loans to its promoters and associates. Several leading journalists who had been vociferously anti-Reliance began singing a different tune. The case of Arun Shourie (former senior editor of the Indian Express, who joined the Bharatiya Janata Party and became a Union minister) is particularly revealing. From being a trenchant critic of the Ambanis who co-authored a series of articles documenting how Indira Gandhi’s government had favoured the Reliance group, as disinvestment minister in the Atal Bihari Vajpayee government, Shourie sang paeans of praise for Dhirubhai. Importantly, he presided over a controversial ‘strategic sale’ of the public sector Indian Petrochemicals Corporation Limited (IPCL) to the Reliance group, thereby giving the group a near-complete monopoly over the markets for a wide range of petrochemical (plastic) products and creating a ‘private monopoly’ where there was none (see Appendix 1: ‘Shourie’s selective memory’.)

  Shourie found himself in the midst of a major controversy when he sought to privatise or divest shares of some of the country’s largest public sector companies engaged in refining and marketing petroleum products: Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited. Particularly contentious was his move to split one of the country’s largest corporate entities, IOC, and hand over control of a part of it to the Reliance group (see Appendix 2: ‘Disinvestment in Danger’.) The reason why Shourie and RIL were keen on dividing IOC and obtaining control over retail outlets became apparent four years later when, in March 2008, RIL decided to shut down all its retail outlets for petroleum products (owned directly by it or through franchisees and/or associates) as international prices of crude oil surged. (RIL has essentially been a refiner of crude oil at its Jamnagar refinery, exporting finished products petrol, diesel and cooking gas.) While the government of India subsidises the products sold by public sector oil refining and marketing companies like IOC, notably diesel and cooking gas, the absence of subsidies to private companies made their operations ‘unviable’. In 2008, RIL was operating roughly 1,432 retail outlets all over the country: 246 in Gujarat, followed by 160 in Maharashtra, 132 in Uttar Pradesh, 129 in Andhra Pradesh, and 107 in Rajasthan. Most of these outlets were owned by RIL and some of these were bought over by RIL from its dealers.

  The decision to shut down the retail outlets came after RIL had, at one stage, reportedly been able to obtain a market share as high as 14 per cent. RIL had less than 3 per cent of the total number of 36,936 petrol pumps in the country. Of the total retail outlets, the three public sector undertakings, IOC, Bharat Petroleum, and Hindustan Petroleum together own and/or operate 34,304 pumps, while the remaining belong to private sector companies, including Essar Oil and Shell India. Before it closed its retail operations, RIL’s retail outlets had been patronised by as many as five million customers.

  The difference in the prices of petroleum products sold by private retailers and public sector companies kept widening. Whereas companies like IOC were buying oil bonds issued by the government as a cushion against ‘under-recoveries’ on account of selling subsidised products, RIL had no such facilities. Before it shut down its retail outlets, RIL was selling motor spirit or petrol at prices that were Rs 6 per litre higher than the prices charged to the consumer by state- owned oil marketing firms after receiving the benefits of discounts from upstream oil companies such as ONGC. The price of diesel (the single most widely used among the various petroleum products sold in the country) sold at RIL outlets at that juncture was a hefty Rs 14 per litre higher than the prices charged at outlets of the PSUs. Public sector companies like IOC were selling petrol at a notional loss of Rs 13.97 a litre and diesel at a discount of Rs 20.97 per litre. Not surprisingly, the relatively higher prices at RIL’s retail outlets dissuaded customers eventually forcing the pumps to go dry.

  RIL, along with other private sector firms like Essar Oil and Shell, lobbied hard for ‘equal treatment’ or a ‘level playing field’ with the public sector companies, urging the government to allow private companies access to oil bonds issued by the Union government to underwrite the subsidy cost of selling certain petroleum products at highly-subsidised prices. On 6 May 2008, the then petroleum minister Murli Deora told the Rajya Sabha:

  Reliance has informed [the government] that sales at their ret
ail outlets was negligible due to selling price differential between private and public sector ROs [refining organisations], leading to the closure of all their 432 pumps in the country with effect from 15 March.…The prices of sensitive petroleum products are fixed by the public sector oil marketing companies in consultation with the government. Private oil companies are not subject to pricing restrictions by the government and are free to take their pricing decisions on commercial considerations.

  However, Essar Oil and Shell India had not closed their petrol pumps, the minister pointed out.

  Nearly two years later, in August 2010, there were reports that RIL was planning to reopen all its fuel stations in the country and that the company was selling petrol and diesel at the same rates as public sector companies. By then, as crude prices surged towards $150 a barrel in the middle of 2008, the company that claimed to operate the ‘world’s biggest’ petroleum refining complex at Jamnagar on the Gujarat coast decided not to go ahead and reopen its retail outlets. ‘If the government announces diesel deregulation then diesel, like petrol, will also be available at market rates. Further to this Reliance will resume operations across all pumps, pan India,’ an official company statement said, adding: ‘Now, with the deregulation of petrol, there is a level playing field and Reliance petrol will now be sold at the same price as that of the other oil companies.’ That was, however, not to be. RIL never re-entered the business of retailing petroleum products. Across the country, one can still see derelict and run-down establishments that were once operated by RIL.

  Dhirubhai Ambani had started his career in Aden, Yemen’s seaport city, as an attendant in a station dispensing petroleum products. Having failed to establish a significant presence across all segments of the industry—from refining crude oil to manufacturing petrochemical products and retailing diesel and petrol—it was now the turn of the group to leave its mark in extracting natural gas from beneath the bed of the ocean. And this proved to be most contentious aspect of the various business interests of the Reliance group. It was also control over natural gas that eventually led to Dhirubhai’s empire getting divided and his two sons parting ways, not very long after his death.