Wills And Won'ts

Dr Manmohan Singh, Prime Minister
Neutral, meets both brothers but conveys the impression that he wants to keep a distance from commercial interests

Sonia Gandhi, Congress president
Leans towards Mukesh, but Anil too has now managed to open a line of communication with her

Sharad Pawar, Union minister for agriculture
Close to both brothers; has tried mediating between them in the past

Kamal Nath, Union industry minister
Is seen as closer to Mukesh, recently rejected demand for scrapping EOU status for the RIL refinery

***

Will Manmohan Singh intervene between the brothers?
Though the brothers met the PM recently, both factions completely rule out even the whiff of mediation by the prime minister, saying that this issue is "rubbish" and "doesn’t arise". There are no moves as of now to engineer an intervention, though the immediate conflicts do require mediation.

Will Amar Singh get his way with his demands on windfall tax, EOU status and spectrum?
There is some movement forward on the spectrum issue, but the government has already rejected the demand to scrap RIL’s EOU status. A committee is debating the impact of a windfall tax, though no decision is expected anytime soon.

What can the two brothers expect from the new regime?
Mukesh’s clout in the government has not diminished, while Anil gets more play after years on the political sidelines. The government will work hard at maintaining a balance between the brothers’ interests, but will have to take a call on the gas issue.

Can Mukesh-Anil carve out a compromise on the burning gas deal?
Time is running out for Mukesh, who needs to quickly find buyers for his gas output. Anil is in the driver’s seat as he has nothing to lose—and lots to gain. If they do not quickly work out a compromise, the government will have to step in.

Will Mukesh back off and allow Anil to swing the MTN deal his way?
With the exclusivity deadline soon, Mukesh has ratcheted up his opposition by initiating arbitration in order to stall a possible deal. This could create further issues for MTN, which is already concerned about the potential legal tangles.

***

Either way, government officials stress, no action will be taken in favour of—or against—either brother while the government's fate hangs in the balance. But what happens if the government stays in power for the next six months or so? Already, things look a little less encouraging for Mukesh. Like the timing of the announcement of the new petroleum secretary. The current incumbent, M.S. Srinivasan—due to retire on July 31—is seen as being close to Mukesh. His replacement, R.S. Pandey, on the other hand, is seen as "neutral". This has raised eyebrows given the importance this ministry holds for Mukesh.

Similarly, Amar Singh has attacked the hoarding of precious spectrum (or radio frequencies) by GSM players, and asked that they be charged a one-time market rate for all radio frequencies they hold over 6.2 MHz. This is a long-standing demand of Anil's, who has been saying that GSM players should return their excess spectrum and pay for additional spectrum. Much to the displeasure of the powerful GSM lobby, the government is reportedly considering the imposition of such a one-time fee.

Eventually, government officials aver, everything will be done in a manner to keep both brothers happy. For instance, if Mukesh's interests in the petroleum sector are protected, those of Anil in telecom will be kept in mind before any decision is taken. This even-handedness was on display last fortnight, though not to the brothers' advantage. First, a Mukesh plane was seized for having evaded customs duties; within days, an Anil jet met the same fate. Within the government, there are enough powerful ministers who are seen as friends of the Ambanis (see Who Stands Where in the Battle Royale). But Congress sources say that while a majority of these ministers are closer to Mukesh, most would not harm Anil's interests either.

Clearly, after years in the Congress's disfavour, Anil's future looks brighter. As an ADAG official put it, "happy days are here again". He couldn't gain much during the UPA regime, thanks to his open alignment with the SP as an Independent Rajya Sabha member. But once Anil realised it was hurting his business interests—ADAG famously lost the Mumbai and Delhi airport modernisation deal—he quickly resigned in 2006, a good four years before his term was due to end, and began to build bridges with the Congress again. A sense of his improved relations came when RComm was allowed to start GSM services in 14 circles after the government modified the licence norms. And now, he is believed to have told Amar Singh that he has enough friends to take care of his interests without the latter's overtly public interventions.

For instance, say ADAG officials, they are going ahead with the Sasan power project in Madhya Pradesh. The only hurdle currently is the utilisation of the excess coal in the captive mines in Sasan—ADAG wants to use it for its other plant in Chitrangi in MP. This will be decided by an egom later this month and if it goes through—as is expected—it will set a new precedent as normally excess coal from a project is claimed by the government and channelised through Coal India.

From a more long-term perspective, ADAG also wants to set up nuclear power projects. If the nuclear deal goes through—and if the government allows the private sector into nuclear energy—ADAG would want to be there.

Solutions seem easier when the brothers' interests are exclusive. The problems arise where the two are in conflict. The biggest among these is the siblings' war over the supply and pricing of gas from RIL's field in the K-G basin. According to the division of assets in 2005, RIL was to supply 28 mmscmd of gas for Reliance Energy's proposed Dadri plant in Uttar Pradesh at around $2.4-2.8 per mBtu, a blessing for Anil, given that the market price for gas is anywhere between $5.5 and $7 per mBtu. Last year, however, the price was revised upwards by a GoM to $4.2 per mBtu. Neither ADAG nor NTPC—which was also to receive gas from the K-G basin—agreed to it.

The matter is in court and hearings are under way. RIL says there is no question of gas supply at present since the work on the Dadri plant hasn't even begun. The ADAG group, however, says that without an assured supply of gas at an agreed price, the group cannot spend thousands of crores of rupees to set up the power plant. It seeks to trade in gas—a lucrative option considering that even at the revised price of gas, it would be windfall profits for ADAG. As much as Mukesh would dislike it, it's easy for Reliance Energy to get a licence to trade in gas. Says an energy expert closely involved with the K-G gas fields, "Anil's riding a paper tiger with no financial project on the ground. He's a net gainer."

It's possible that a decision may come out of court as time is running out for Mukesh—production from the K-G basin is slated to start in two months' time. The Bombay High Court has barred RIL from selling the gas to any third party. ADAG itself is open to negotiating for an out-of-court settlement on the price "if the other side comes to the table". RIL, however, is sticking to its guns and counting on the government stepping in. "If the gas can't be produced, something has to be done about it," says the Reliance official.

As an extreme step, it could even give the gas—which can't be kept in the ground—to the government. A more reasonable expectation is that the government could intervene by notifying a gas utilisation policy—which stipulates where the natural resource gets priority, like fertiliser units and power plants. Given the "national interest" for a precious natural commodity, the government will have to intervene, and that's when the new alignments will be put to test. The hope is that both sides will eventually move to the negotiating table.

Meanwhile, though, they will have to resolve the battle on another front: telecom. Anil's negotiations for a merger deal with South African telecom giant MTN seem to have run into static with big brother Mukesh invoking the right of first refusal. ADAG officials concede that it is an issue, and it could jeopardise the deal. RIL had invited ADAG for conciliation talks on the issue, which the latter did not attend. And even as the two parties extended their exclusivity period for talks till the third week of July, there were reports that MTN was keeping its options open. Mukesh, on his part, has now upped the ante by proceeding with arbitration against ADAG.

Even as ADAG terms it as "legally unwarranted", the latest move sends out a clear signal that MTN could face legal hurdles if it decides to go ahead with the deal. While there have been many sceptics on the viability of the deal, the opposition from Mukesh could deliver a deep personal blow to Anil as he sees this as an opportunity to establish himself as an empire-builder in his own right.

Clearly, this is not the last skirmish in this battle of two brothers. There's too much ego and big bucks at stake. "There is no measure that can keep both brothers happy. It's not possible," says Arun Kejriwal, founder of investment advisory firm Kejriwal Research. For now, both sides will ride out the new political equations. Mukesh's standing in the government hasn't diminished, while Anil can expect some benefits from being "associated" with the government now. But the real battle is within. And there are no easy solutions there.