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Page last updated at 15:00 GMT, Friday, 7 May 2010 16:00 UK

Ambani brothers forced to negotiate

India's Supreme Court has ruled in favour of billionaire Mukesh Ambani's Reliance Industries (RIL) in a dispute with his brother over natural gas prices. Delhi-based journalist Shantanu Guha Ray explains what the row is about.

Anil and Mukesh Ambani
The brothers have been called the 'squabbling siblings'

The world's richest quarrelling siblings have not resolved their differences despite the passage of five years, expenditure of $37 million (£25m) and a series of court battles.

It all began when gas was discovered in the Krishna Godavari basin off India's eastern coast in 2002 by Reliance Industries.

It was one of the largest discoveries made in Asia in recent years and India's biggest gas field with $38 (£25) billion worth of reserves.

But the Reliance empire was divided between the two brothers in 2005 after a bitter seven-month feud.

On Friday, judges ordered the brothers to talk to one another in a row over how much Anil Ambani's Reliance Natural Resources should pay Mukesh Ambani's Reliance Industries for the gas that was discovered.

Renegotiation

"Get together to renegotiate a price of the natural gas," Justice R Sathasivan and S Reddy said on Friday.

The judgment - signed by the country's Chief Justice KG Balakrishnan - ruled in favour of Mukesh Ambani, the elder brother and India's richest man.

It said that a pact setting a price for gas to be sold from Mukesh Ambani's company to Anil Ambani's company was not binding.

This was a family pact brokered by their mother when Reliance was split in June 2005. The court said it was not legally sustainable.

The family said that Mukesh Ambani's Reliance India Limited (RIL), the country's most valuable listed company, would supply 28 million units of gas for 17 years at $2.34 (£1.59) per unit.

But the court ruled the Indian government would eventually decide the final price of the gas and grant permission to sell it.

His younger brother, Anil Ambani, had long demanded that the previous family pact be honoured. This would allow his company to buy gas for 17 years at a price 44% lower than the one set by the government.

But older brother Mukesh Ambani rejected the demand.

Anil Ambani with his mother Kokilabehn Ambani
Mrs Ambani has helped resolve disputes between her sons in the past

The brothers have to return to court in six weeks.

The court verdict further said that gas, being a national asset, belonged to the government till delivered to the consumer - a contention once hotly argued by the younger brother.

Asset split

Reflecting the decision, shares in Reliance Natural Resources owned by Anil Ambani, plunged 18.29% on the Mumbai stock exchange as against a 4.56% rise in RIL shares.

The quarrelling siblings had sliced up the Reliance empire built by their father Dhirubhai Ambani, who died in 2002 leaving no will.

In the asset split, Mukesh kept oil, gas and petrochemicals businesses while Anil got Reliance Energy, one of India's biggest power utility firms, the telecommunications company and the finance arm.

"Now, the re-negotiation has to take place within the ambit of the government's policy. It will be tough for the younger brother," said a corporate source requesting anonymity.

On Friday, Anil Ambani said he had no plans to file a review petition.

"I am confident that the family MoU will continue to form the backbone of our business renegotiations," he told reporters.

The government had set a price of $4.2 (£2.85 ) per million British thermal units in September 2007 for gas contracts in the Krishna Godavari basin.

Bombay Stock Exchange
Shares in Reliance Natural Resources fell by 18.29% after the court order

At the time this was contested by Reliance Energy which argued that the government's decision on gas prices could not be implemented retrospectively.

RIL also argued that the private deal cannot take precedence over the government policy that determines who can receive gas and at what price.

The 50-year-old Anil Ambani, who claimed otherwise, immediately rolled out a series of front-page advertisements in major dailies accusing the government of being "partisan and biased" towards his elder brother.

The dispute in the country's richest family has rattled investors and often raised concerns over the influence of powerful businesses on government policies in India.

India's energy demand

Experts say the eventual settlement between the brothers may also determine whether energy-starved India will be able to attract more exploration.

India's Petroleum Minister Murli Deora said recently that last year's auction of oil and gas fields received few offers because of disputes over production-sharing contracts awarded in previous rounds.

He said international energy companies bid for half of the oil and gas blocks on offer during an auction that closed last October as the Ambani gas dispute made its way to the Supreme Court.

This year, BG Group Plc, the UK's third-largest natural-gas producer, withdrew from a block with the state-owned Oil and Natural Gas Corporation for what it called the "absence of clear documentation on the validity of its contract".

Delhi, which imports more than 75% of its crude oil needs, is keen to boost investment to push domestic supplies and reduce dependence on overseas purchases.

The International Energy Agency says India will account for 15% of the global increase in energy demand by 2030.

The writer is business editor of Tehelka magazine



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SEE ALSO
Court rules in Reliance gas feud
07 May 10 |  South Asia
World's richest brothers feud again
15 Jul 08 |  South Asia


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