Top India court ruling favors Reliance Industries, says government controls gas pricing

Top India court ruling favors Reliance Industries

MUMBAI, India — India’s highest court on Friday ruled in favor of billionaire Mukesh Ambani in a long-running feud with his younger brother over the price of natural gas from the country’s largest known deposit, handing the tycoon a potential multibillion dollar windfall.

The case tested the government’s control of India’s natural resources against the sanctity of a private contract. The Supreme Court came down squarely in favor of the state in a decision that could set an important precedent and help end a five-year fight that has slowed oil and gas production in energy-hungry India.

The ruling means Mukesh’s Reliance Industries will likely be able to sell gas to his brother Anil’s Reliance Natural Resources, for double the rate set in a 2005 family agreement. Reliance Industries had sought to nullify the agreement because it hadn’t been approved by the government.

“Today the Supreme Court has unambiguously ruled that the government is the absolute owner, the constitutional owner, the sovereign owner of gas,” additional solicitor general Mohan Parasaran, who represented the government in the case, told reporters outside the courthouse in New Delhi. “It has got absolute rights to regulate the sale of gas.”

Shares of Reliance Industries — India’s most valuable company — closed up 2.3 percent in Bombay, while shares in Anil’s Reliance Natural Resources shed nearly a quarter of their value, closing at 52.8 rupees — a 22.8 percent slide.

The court gave the feuding brothers six weeks to renegotiate their contract.

Parasaran said that for the purposes of those negotiations, the price set by the family agreement is “no longer valid.”

“They have to take into account the governmental price,” he said.

That likely means a windfall for Mukesh, already the world’s fourth-richest man. Reliance Industries has calculated that it could make $11.5 billion from the gas if it’s priced at the current government rate — avoiding a $5.4 billion loss that would have resulted from the family price.

For Anil, the cost of losing the case could be even higher. The gas supply contract, he told shareholders in July, is “our company’s primary asset and contributes most of its value.”

Harish Salve, who represented Reliance Industries in the case, told reporters that Mukesh and his wife hoped the ruling would be a “healing touch” to end the bitter family dispute. “The way ahead looks positive to put all the unpleasantness and acrimony behind us,” he said.

Anil Ambani told reporters in a conference call that he does not plan to ask the court to review its decision.

The dispute exposed weaknesses in India’s oil and gas sector, which is dominated by a few large players and lacks an independent regulator to oversee wholesale gas pricing.

It also tested the boundaries between government and big business in a country where powerful dynasties like the Ambanis often enjoy close ties with politicians.

The verdict tells investors that government contracts reign supreme, at least when it comes to crucial natural resources, said Bhaskar Chakraborty, oil and gas analyst at Mumbai’s IIFL Capital.

“The contract you have entered into with the government is sacrosanct,” he said. “You know what you’re signing up for and getting into.”

In dismissing the family arrangement, the ruling calls into question not just how much Anil might pay for gas from the basin, but how much gas he will get at all. It also removes a shadow of uncertainty from Reliance Industries cast by other aspects of the family memorandum.

Anil will no longer have right of first refusal over 40 percent of all of Reliance Industries’ future reserves, including new discoveries, Chakraborty said.

By enforcing a higher sale price, the decision will likely encourage more investment in exploration and production in India, he said.

The bickering began after the Ambani patriarch, Dhirubhai — who was one of India’s first great capitalists — died without leaving a will to divide his sprawling empire.

In 2005, his wife brokered a family agreement, allocating core oil and gas interests to Mukesh, while reserving power, telecom, entertainment and financial services assets for younger brother Anil.

As part of that deal, Anil was to get cheap gas for his power company from Mukesh.

After the price of gas rose, the brothers went to court.

The resulting imbroglio eventually drew in top officials in India’s powerful Ministry of Petroleum & Natural Gas.

Anil issued a weeklong series of front page newspaper advertisements lambasting the government for allowing his brother to rake in “super-normal” profits, accusing top officials of inappropriately accepting favors.

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Associated Press writer Muneeza Naqvi contributed to this report from New Delhi.