The Hindu Business Line : Gas deal fuels Ambani spat

NATURAL gas is incendiary and it has indeed proved to be so by re-igniting the spat between the two Ambani brothers. That there would be a battle of wits between Mr Mukesh Ambani, who controls the strategic KG Basin gas reserves, and Mr Anil Ambani, who needs it desperately to fuel his ambitions, was certainly expected. That it would happen so soon after the settlement and at such speed was certainly not.

Make no mistake. The spat is not about whether due process was followed by Reliance Industries (RIL) in finalising the deal with Reliance Natural Resources (RNRL) and whether the Mukesh Ambani camp has delayed transfer of control over the four companies resulting from the demerger. Important as they are, they are still incidental.

The dispute is all about how the brothers will share the gas reserves, which is important to both of their businesses.

At face value, which is not always the best picture when it comes to the feud between the two brothers, the deal signed by RIL and RNRL appears fair. The pricing of the gas at $3.18 per million metric British thermal unit (MMBTU), inclusive of transportation, is certainly much lower than the market price of gas in India today, which is closer to $5 per MMBTU.

If you consider the prevailing international price of close to $10 per MMBTU, then RNRL can certainly be said to have got an excellent deal.

The agreed base volume of 28 million metric standard cubic metres a day (mmscmd) translates to approximately 7 million tonnes of gas per annum. This is by far the largest single natural gas deal in the country till now and the quantity of gas is enough to fuel the immediate power plans of Reliance Energy.

However, what appears to have irked the Anil Ambani camp are two factors. First, RIL (and the Mukesh Ambani camp) has capped its basic supply liability at 28 mmscmd and if the Anil Ambani companies need more gas, supply would be subject to availability after taking care of RIL's other obligations.

However, if the deal signed by RIL with NTPC for 12 mmscmd fails for some reason, this quantum will go to RNRL taking its total entitlement to 40 mmscmd.

Second and more important, the agreed quantum is only available to the already planned power projects of the Anil Ambani group at Patalganga and Dadri.

It is this, along with the limitation on base volume that seems to have made the Anil Ambani camp unhappy.

Of course, RNRL has the first right of refusal of 40 per cent of gas production over and above 53 mmscmd. But the objections from the Anil Ambani camp now seem to suggest that the possibility of gas production from the KG Basin being higher than this figure is limited.

In other words, the 40 per cent right of refusal may mean nothing much on the ground as production may not exceed that figure.

Assuming that there indeed is extra gas available, the pricing of such gas will be linked to the US consumer price index and liable to change every year. In short, the deal signed by RIL with RNRL is totally commercial and no concessions have been granted to the latter.

It is here that the complaint of the Anil Ambani camp on due procedure not being followed assumes significance. Assuming that control of RNRL had passed to the Anil Ambani group, the terms of the gas deal may have been different.

In the present instance, the Anil Ambani camp appears to have had no say in the finer terms of the deal. And that, is the crux of the matter.

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