Anil was painted by his media managers as a puny David fighting against a greedy Goliath out to grab the family’s assets by depriving his younger brother of his share. It was an age-old Mahabharata-like tale of family members willing to stab each other in the back for money and power. The war lasted seven months. Mukesh’s image took a beating. Then, forced by mediators like K.V. Kamath, the then chairman of ICICI (formerly Industrial Credit and Investment Corporation of India) and important leaders, including prime minister Manmohan Singh and finance minister P. Chidambaram, Mukesh agreed to a truce. On 18 June 2005, the Ambani matriarch Kokilaben announced a division of assets of the Reliance group between the two brothers. Everyone apparently welcomed this as they thought it would signal the end of a bitter battle. Mukesh was, however, upset and angry. He hated the thought of having to give up control of his baby, Reliance Infocomm, which, together with Reliance Energy and Reliance Capital, went to Anil. He retained control over the group flagship RIL and IPCL.
Mukesh had several scores to settle. He had to wreak vengeance for having been vilified. He had lost the battle in the media for the time being but was preparing to hit back at Anil, using the same media. He wanted to prove to the world that Anil lacked his business acumen. He began to sharpen several arrows he had in his quiver. For Mukesh, only a battle had been lost; he was certain he would win the war. Mukesh decided to put spokes in Anil’s wheels.
The initial public offering (IPO) of shares of Reliance Power, Anil’s fledgling company, with grand plans in the power sector, was billed as the biggest feather in his entrepreneurial cap. At Rs 12,000 crore, it was the largest IPO in the country. The response to it was breathtaking: commitments of Rs 750,000 crore from 500 institutional investors and five million retail investors. After the allotment of shares in early 2008, the company had the country’s largest shareholder base with four million investors. Dhirubhai, who was known as the father of India’s capital markets, would have been proud of Anil. On New Year’s Day 2008, Anil stated:
So far as the IPO is concerned, it was an onerous task. But the training I have got while working with my father has made the task easy. I remember, in 1978, when we launched the first IPO (of RIL) of about Rs 8 crore, I had myself gone to bank branches every day to collect forms physically and in the night punched numbers on them.
Anil believed Mukesh did not want Reliance Power to become a successful venture. The reason: if the IPO had been listed at a premium of 20 per cent to 30 per cent in comparison to its issue price, as was expected, Anil would have become a notionally richer individual than Mukesh because of his holding in Reliance Power. Mukesh would just not be able to digest such a denouement, it was claimed. Anil alleged that Mukesh-backed firms sold massive quantities of shares on the day Reliance Power was listed on the exchanges to hammer down the share’s price. On 11 February 2008, the scrip, which had been issued to retail investors at Rs 430 per share and to institutions at Rs 440 per share, crashed by as much as 21 per cent during a single day’s trading.
The selling pressure continued. In a complaint to the regulator of the country’s capital markets, the Securities and Exchange Board of India (SEBI), Anil said that ‘seven Mauritius firms went on a selling spree within the first four minutes of listing even when the market was falling. I can understand people selling when the price is going up. There is more to it than meets the eye.’ Anil’s lieutenant, Amitabh Jhunjhunwala, circulated documents on the sales made by these Mauritius firms. Sources close to Mukesh claimed that these seven firms sold the shares they had been allotted in the IPO and therefore there was nothing illegal about it, even if these firms were controlled by Mukesh. Thanks to the fall in the price of Reliance Power shares, Anil’s personal wealth remained well below that of Mukesh. He had to assuage the hurt sentiments of his investors, who had lost huge sums due to the bear hammering. Anil took a leaf out of Dhirubhai’s book. In an unprecedented move, Reliance Power announced a bonus issue (in the ratio of three shares for every five shares held) within a fortnight of its listing. After the company’s board meeting on 23 February 2008, Anil said:
I have been personally concerned [about] … the notional losses arising to the millions of long-term investors in Reliance Power as a result of a dramatic adverse change in sentiment in global and domestic capital markets, subsequent to the pricing of our IPO. Though equities are risk-bearing instruments, we have taken this one-time measure today in demonstration of our philosophy of endeavouring to protect and enhance value for all our long-term shareholders. The board endorsed my concern and approved the bonus issue.
The IPO fiasco was a huge blow for Anil. Ever since 18 June 2005, the day when the split between the Ambani brothers was formally announced, he had been unhappy and was often enraged. He was firmly of the view that the split in the assets of the undivided Reliance group had been unfair and that Mukesh had walked away with the lion’s share of the group’s assets (around 70 per cent) because he got full control over RIL. Anil’s strategy was to increase the valuation of companies in his group. He had to prove a point: that he could match his older brother.
A few months later, an important merger and acquisition move planned by Anil was successfully stalled, and then scuttled by Mukesh. This was the move by Reliance Communications or RCom, the new avatar of Reliance Infocomm, to join hands with the South African telecom giant, MTN. In June 2008, when Anil announced that RCom would merge with MTN, Mukesh opposed the deal. Citing a clause in the family memorandum of understanding (MoU), mediated by mother Kokilaben, he said that neither of the brothers could sell their stakes in existing companies without granting the first right of refusal to the other. What this meant was that Anil had to first offer the shares to Mukesh and, only if he refused to buy these, could he sell the shares to MTN. Anil rejected the logic. He said the right of refusal was ‘meaningless’ as the Companies Act did not provide for any restrictions on the sale or transfer of shares in a public limited company; that such a step was illegal and unenforceable. ‘RIL’s claim of a right of first refusal is simply an excuse to try and disrupt the creation of one of the world’s most valuable telecom combinations, with a unique footprint covering the emerging growth markets of India, Africa and the Middle East,’ said a statement put out by the ADAG. Anil’s friend Amar Singh added that ‘the way Mukesh is opposing the MTN deal is very disgusting as the deal is good for the country.’
Mukesh, however, called for a conciliatory meeting with Anil on the issue on 8 July 2008, as was mandatory under the family MoU, after which the two parties had to go in for arbitration, within 30 days, if the issue remained unresolved. Anil didn’t turn up for the meeting, and wanted it to be rescheduled. Mukesh refused and said he was left with no option ‘but to adopt appropriate proceedings against RCom’. Anil retorted that ‘RIL’s mala fide stand is now clearly established….’
That very day Anil indicated that he would opt for a reverse merger with MTN; he would buy a 51 per cent stake in the South African telecom company. This was one way of wriggling out of the first right of refusal problem as he was not selling his shares. On 18 July 2008, RIL initiated the arbitration process against RCom. The next day, MTN and Anil called off the merger talks. Most observers agreed that MTN was put off by the fight between the two Ambani brothers.
While these were direct interventions by Mukesh to stop Anil in his tracks, Anil charged Mukesh with pulling political strings to hurt his interests. He alleged that Mukesh had ensured that political pressure was exerted to ensure that bids placed by ADAG companies to privatise and modernise the airports at Delhi and Mumbai were rejected. Others claimed that ADAG representatives had themselves tried to unsuccessfully influence government officials to manipulate the bidding process and were now cribbing. Here is how an article in Outlook (13 February 2006) by Saumya Roy and Alam Srinivas reported the controversies:
Initially, they [the critics] say that norms were twisted and turned by the government-appointed consultants at the technical bids stage to accommodat
e the Reliance group. It was alleged that both the consultants, ABN Amro and Amarchand Mangaldas, were close to Reliance and, therefore, there was a conflict of interest. The Reliance group [Anil’s faction, or the Anil Dhirubhai Ambani Group] denied the charges, saying the consultants were appointed before the bidders appeared on the scene. Later, Reliance’s technical bid was downgraded and only one of the bidders, GMR, managed to stay above the technical benchmarks. In an effort to induce competition, the government lowered the technical criteria to allow other bidders to remain in the fray.
On 31 January, the financial bids of five players were opened and it was clear that the one who emerges as No. 1 financially in each city would win the contract. It didn’t happen that way. At the last minute, the government decided that the No. 2 in Delhi—the GMR group— would be allowed to match the financial bid of the winner, the Reliance group. GMR did it and got the Delhi contract. However, in Mumbai, the winner of the financial bid, the GVK group, was awarded the contract. The logic was that since GMR was the only one that cleared the original technical parameters, it should be given a chance (to match the highest financial bid in Delhi).
Obviously, Reliance didn’t agree and, this time, it criticised the entire process as unfair. It was claimed that two Union ministers, who were part of an inter-ministerial group that took key decisions relating to privatisation of the two biggest airports in the country had close links with the GMR group. It was alleged in hushed tones that the most powerful politicians in the country intervened to ensure that ADAG’s bids were not accepted. This book’s lead author had written an opinion article in the same publication, Outlook (23 January 2006), arguing the way this episode highlighted how powerful corporate groups like Reliance sought to influence a pliant political leadership and bureaucracy that is ever willing to bend rules (see Appendix 3: ‘A Muddied Tarmac’.)
The sibling rivalry raged on. In June 2006, Anil went after the ministry of petroleum and natural gas, which, he said, sought to harm him when bids were being made for contracts to extract coal-bed methane (CBM). When, on 30 June 2006, the ministry evaluated bids for the 10 CBM blocks, tenders for which were submitted by various private firms, Anil Ambani’s Reliance Natural Resources Limited argued that it should have been awarded six blocks, instead of four. In the two blocks that it lost, RNRL claimed the difference in marks (out of 100) between RNRL and the winner (a consortium comprising Arrow Energy, Gail, EXX and Tata Power) was only 0.901 and 1.213, respectively. In both cases, the ministry then used its discretionary powers. While 97 marks were based on objective parameters, the ministry had discretionary powers in the case of the remaining three marks—to award higher marks to RNRL’s competitor. ‘If the bids of these two blocks are evaluated on the basis of the objectively-defined 97 marks, without exercising discretion over the award of the three marks, which have very subjective criteria, the RNRL-led consortium would be the clear winner for the two blocks in question,’ read a letter (dated August 18, 2006) that RNRL wrote to the petroleum ministry (quoted in Outlook, 4 September 2006).
‘The parameters to award the three marks were objective and transparent and all bidders were aware of it,’ contended V.K. Sibal, the then director general, directorate general of hydrocarbons (DGH), who was quoted in the Outlook article of 4 September authored by Alam Srinivas and Arindam Mukherjee. Other officials maintained that the bid documents mentioned these details and said that while two marks were reserved for geological concepts, one was for expenditure on additional works. RNRL scored a high1.5 and 1 for the two contentious blocks in the former category, but low (0.1 each) ones in the case of the latter. There is more than a touch of irony in the fact that this was the same V.K. Sibal who was later accused by Anil Ambani of having allowed RIL to ‘gold-plate’ its capital investments to extract gas from the KG basin and also charged by the CBI of having allegedly received bribes for favours given when he headed the DGH.
Anil saw Mukesh’s hand in all his business failures, but the worst face-off between the two brothers proved to be the dispute over utilisation of KG gas which stemmed from the family MoU signed by the two in June 2005. The days to come would be stormier still.
4
(RELIANCE) INDIA NATURAL RESOURCES UNLIMITED
There are at least four versions of the dispute between Mukesh and Anilon natural gas from the Krishna-Godavari basin. If you meet those onMukesh’s side, they may convince you that their arguments are valid. You may then meet us and think we are right. Government spokespersons too could convince you that their position is logical and correct. Finally, there is the legal interpretation given by courts. There is no black or white in this tussle, only different shades of grey.
—a senior aide of Anil Ambani, December 2009
The battle over natural gas in the Krishna-Godavari (KG) basin has many dimensions. It is not merely about technological challenges. Nor is it just about interpreting the fine print of contractual documents. It is about the letter of the law and also the spirit of the statute. Above all, the dispute is about human intentions and clashing egos. Each side erred to some degree. Both brothers proved to be selfish, vengeful and greedy. It was a war without values.
Control over natural gas production, exploration and distribution was crucial to the entrepreneurial ambitions of both Anil and Mukesh. It was central to the de-merger of assets informally outlined through the 18 June 2005 family memorandum of understanding (MoU). However, what could have been a win-win situation for both brothers became a zero-sum game given their personal proclivities. The resulting legal battles raised doubts about both the legality of the agreement to supply gas between Reliance Industries Limited (RIL) and Reliance Natural Resources Limited (RNRL) as well as the latter’s ability to acquire loans to finance the country’s (and Asia’s) biggest gas-based power project in Dadri, Uttar Pradesh. As the confrontation between the siblings intensified, a more serious and far larger issue was highlighted: the role of private companies in exercising control over India’s scarce (and hence, precious) natural resources. Despite the Bombay High Court’s disinterested June 2009 judgement regarding the dispute, it was evident that the government was not acting as a neutral or impartial custodian of the nation’s natural resources.
Earlier in June 2005 when, after months of acrimony, Mukesh and Anil decided to split the group’s assets, their mother Kokilaben had tried to act as an honest mediator. Anil realised that whatever be the modalities or conditions of the division, he would invariably obtain less than his elder brother, and that Mukesh would never give up RIL (and with it, Indian Petrochemicals Corporation Limited or IPCL), thereby controlling nearly three-fourths of the assets of the undivided Reliance group and an even higher proportion of the group’s profits. Under the circumstances, Anil sought a share in the group’s future earnings and staked a claim over the gas discovered from the KG basin which at that time was believed to be the largest gas discovery in India. Anil wanted a portion of this natural resource to set up what was billed as his first mega-greenfield project. He wanted to prove that he could set up a large venture from scratch, since the credit for setting up projects like the Jamnagar refinery was being entirely enjoyed by his brother Mukesh.
When the MoU to divide the assets between the brothers was signed in June 2005 in the presence of their mother Kokilaben, there was a clause that split the future gas assets of the group. The relevant portion of the MoU read: ‘Kokilaben realises 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 (Reliance Energy Limited) to even greater heights.’ There was an elaborate plan to divide the gas assets, including the quantities that would be given to Anil, and the price at which gas would be supplied, namely, $2.34 per million British thermal units (mBtu). The price became the most contentious aspect of the dispute. Before the signing of the MoU, RIL had offered to sell the gas at the same price to the government-owned power utility, NTPC th
rough a globally- competitive bidding process. Later, RIL and NTPC had differences over the quantum and price of gas to be supplied to the latter’s Kawas and Gandhar power plants and dragged the dispute to the Bombay High Court. However, under the family MoU, Anil benchmarked his gas supplies at a price of $2.34 per mBtu. RIL agreed. It seemed a win-win situation for both the brothers. The brothers were not, however, really thinking of their respective business interests; each was apparently far more interested in spiting the other. Both wanted to disregard the fine print of the MoU; both wanted their slice of the cake and to eat it too.
Anil’s credentials as a large entrepreneur depended on the successful execution of the Dadri power project. This project had first been approved in 2003 by the Samajwadi Party government in Uttar Pradesh. Cheap and assured fuel supply, in this case, natural gas, was critical for its success. However, the project proved to be a non-starter because of a number of reasons. First, the brothers could not agree on the supply and pricing of KG gas. It was argued that the long distance of over 2,000 kilometres that the gas would have to be transported through pipelines from the coast of Andhra Pradesh to Dadri near Delhi would render the project unviable. Then, the farmers who owned the land on which the power project was to be set up conducted a series of agitations which were supported by various political leaders, including former prime minister of India (and one- time bête noire of Dhirubhai Ambani) V.P. Singh. Finally, in December 2009, the Allahabad bench of the Uttar Pradesh high court quashed the manner in which the then state government acquired 2,500 acres of land without adequately compensating the owners of the land.
GAS WARS: CRONY CAPITALISM AND THE AMBANIS Page 10
