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December 23, 2009

Ambani Vs Ambani – The story unveiled

The Ambani brothers are at it again and this time its “gas”. However unlike their previous battles the outcome of this one seems to involve pretty much the entire country. This episode starts with RIL getting into a contract with the government to explore and produce gas with the government getting a royalty on all revenues generated from the venture. This took place before the Mukesh-Anil split. However, after the split Anil got RNRL and Mukesh retained RIL and this division of interest seems to be the where it all started.

The entire riff raff revolves around a MoU signed by Mukesh and Anil soon after their split. The MoU dated 18th June 2005 entitles the Anil Ambani group to 28 mmscd of gas from the KG Basin. Additionally it also states that the in case the contract between NTPC and RIL for the supply 12 mmscd gas did not materialize, the Anil Ambani group would be entitled to this as well. RIL is also obligated to sell gas at $2.34 mmbtu to RNRL as per the terms of the MoU. In addition to this the reserves as well as new discoveries of gas would be divided in a ratio of 60:40 between RIL and RNRL. However Mukesh Ambani claims that the price was never committed as it was subject to government approval which finally fixed the price of $4.2 per mmbtu and that in spite of the MoU RNRL cannot lay claim to further discoveries as the gas is owned by the government. This MoU seems to be centre of several controversies. First, the board of RIL claims that it was not privy to the MoU and hence it was a family understanding and cannot be enforceable. This MoU has also raised hackles of the government. Article 297 of the Constitution of India lists petroleum as a resource which the Union of India has authority over. Here, for crude, the contractor has full freedom. But for gas, the government utilization policy and pricing policy are the curtailing clauses. The gas allocation policy has plenty to do with the battle royal involving Mukesh and Anil Ambani. The gas allocation policy allows the government to decide which sector gets the supply first. As a result of this policy the two gas based power plants of RNRL in Dadri and Shahpur have still not got the supply. Second, if RIL supplies gas to RNRL at $2.34 it would give RNRL a competitive edge over the other gas based power producing companies who are currently purchasing gas at $4.2 per mmbtu.

The role of the mother

The mother Kokilaben has being playing principal mediator between the brothers right through the conflict and was instrumental in signing of the MoU. The MoU dated 18th June 2005 States “Kokilaben recognizes 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 to even greater heights. Kokilaben has, therefore, specially stressed and impressed upon Mukesh (that he) shall personally ensure that at the time of finalization of the binding gas supply agreement the terms provide the required comfort and stability in these agreements, even if this means some departure from the NTPC standards. However, this was contradicted in April 2006 when Kokilaben stated that since both the companies were listed she would not interfere.

The NTPC bid saga

Another controversy is the question was how the price of $2.34 came into being. NTPC was to be RIL’s first gas buyer. RIL won the bid to supply gas to NTPC at $2.34 per mmbtu. There are question marks as to the reasons for such pricing. There are two varying explanations for the same. First, some claim that the global gas prices were of the same average. Second, the deal with NTPC was before the brothers split and the then unified RIL would definitely want to benefit from cheap gas and cheap power and also having a prestigious customer like NTPC would have helped in raising funds for capital expenditure.

Money Matters

The pricing remains a key issue in this matter as the price could mean loss or profits of thousands of crores to the involved parties. There are several versions with relation to the pricing as mentioned below.

RIL: Government approval required for pricing

RNRL: Government approval needed only for price for calculating royalty, profit share and income tax

Government Version 1: Contractor free to sell at “arm’s length price”.

Government Version 2:Gas prices should be market determined

Government Version 3:Government has explicit role in approving sale prices and gas cannot be sold at a price different from its valuation

Bombay High Court(Sep 2007):RIL cannot be directed to sell gas at subsidized rates and incur losses

Bombay High Court(Sep 2007):RIL and RNRL to adhere to the exact contents of the MoU

The above chart shows the revenue for the RIL and the Government in various scenarios. The stakes involved for both the brothers are huge. RNRL claims that if it has to buy gas for its power plants at $ 4.2 per mmbtu it would suffer a loss of $ 1 billion over a period of 17 years, whereas RIL claims that if it supplies at $ 2.34 it would suffer losses in excess of $ 5 billion. The government wants a higher price as that would mean increased revenues.

For now the focus has shifted to the validity of the gas supply agreement signed by the Ambani brothers. But the issue of pricing remains the key and its resolution can’t be postponed, no matter how many other aspects are looked into.

Possible Solutions:

1. Since Mukesh committed to the MoU he or RIL should compensate the government for any losses due to the sale of gas to RNRL at the lower price.

2. RNRL gives up its demand for $ 2.34 price.

3. Allow RIL complete freedom with regard to pricing.

4. The Supreme Court could annul the provisions of the MoU that deal with gas sharing and supply. The court could ask RIL to compensate RNRL for non supply of gas at $ 2.34 per mmbtu.

However, no clear cut solution in sight which is a natural consequence of a family dispute turning into a corporate battle and further snowballing into a fight to protect National assets.

II] Delving deeper into the past:

Having discussed the current situation between the Ambani brothers, we need to look into the course of action that led to this situation and thus created this conflict.

The conflict process occurs in stages: a) Potential Opposition or Incompatibility b) Cognition and personalization c) Intentions d) Behaviour e) Outcomes.

Potential Opposition or Incompatibility:

The first step in the conflict process is the presence of conditions that create the opportunities for conflict to arise. These conditions may or may not directly lead to conflict but the presence of one of these conditions is necessary if conflict is to surface. Taking the conflict of one of India’s most prominent business families into consideration, we see that the very personalities of the two brothers were at loggerheads with each other. Mukesh Ambani (who was elder by two years) was always the shy one, even in school. He had very few friends and avoided coming to the limelight. This brother always stayed away from public life and was later catapulted into the growing operations of the Reliance Empire. Probably he was the kind of person who liked to stay inside his coupe (with very few friends) and enjoyed the power he wielded from that place. He was neither seen in Mumbai’s cocktail parties nor any social meets but he managed to maintain friendship with the very limited number of friends he had made back in his school (Anand Jain) and college (Manoj Modi) who proved to be his confidante and among his die-hard loyalists.

On the contrary, Mukesh Ambani’s younger brother was poles apart from what he was. He was flamboyant, brash and loved the centre stage. He was always in the limelight, in the media news. He was selected as the MTV Youth Icon for the year 2003. He was always seen interacting with the right people, networking constantly. He was indeed the public face of the Ambanis. His impeccable social skills, wit, selling-ice-to-the-Eskimo attitude made not only him very popular but also served the interests of the company. There were many who hadn’t seen or met Mr. Dhirubhai or Mukesh Ambani, but there were none who hadn’t seen or met the younger Ambani. He had a great role to play in all negotiations, corporate image building, press releases or raising funds for projects.

In May 1991, The Economist published a survey on India, titles ‘Caged’, with the photograph of a caged tiger on the cover. For most economists, this survey provided the final push to Manmohan Singh to unleash economic reforms in the country. The author, Clive Crook, made caustic comments on India’s red-tapism and bureaucratic controls that was strangulating the country’s growth and also attacked the corporate like Reliance. He said that the company had taken advantage of the regulations and had built a near-monopolistic empire. It was then that Mr. Dhirubhai Ambani had asked his elder son to take care of the situation and entrusted him with the responsibility of taking the name of Reliance to such heights that the world henceforth would recognise Reliance as a truly world class organisation. With the commissioning of the Jamnagar refinery (world’s largest grass root refinery), the entire credit for which very justly went to Mukesh & his wife, Reliance was in the news for all the right reasons. It proved to be a turning point in the history of Reliance and in the future of the Ambani brothers.

On the other hand, in the early 1990s Business and Political Observer, a newspaper project was handed over to Anil Ambani. The BPO was Reliance’s first media venture. But the strategy adopted was wrong. Some of the highly paid journalists were hired and they were forced to write favourably of Reliance supporters and demolish the opponents & politicians who went against Reliance. BPO thus had only Reliance loyalists, soon it became top-heavy with high salaried media personae and lost its market. The newspaper died prematurely but by then a few hundred crores of rupees had already sunk.

All these conditions actually laid the foundation for the historical conflict that overcame the family.

Cognition and Personalization:

If the conditions in the previous stage negatively affect something that one party cares about, then the potential for opposition or incompatibility becomes actualised in the second stage. There were a number of incidents which gave a firmer shape to the budding conflict.

After they tied nuptial knots the contrary personalities of the two brothers became evident in that of their wives as well, their wives were a mere reflection of them. Nita Ambani, who is from a middle class background was equally shy of a public image and dutifully followed her husband in almost all business activities be it during the commissioning of the Jamnagar refinery, or while handling the responsibilities of Infocomm. On the other hand Tina Ambani (whom Anil married against the wishes of everyone in the family) was gregarious, a perfect hostess on every party and extremely popular in the social circle. It would be redundant to say that these parties were avoided by Mrs. Nita Ambani and they never got along well together. This augmented the growing distance between the two brothers.

In 1986, Mr. Dhirubhai Ambani underwent a massive stroke and became paralytic. After that the major operations were handled by Mukesh. In 1991-92 he was promoted as the RIL’s Vice Chairman and Anil became the Joint–Managing Director. In 1992 – 93 Mukesh was further promoted as the Chairman of Reliance Petroleum. This move actually made it very apparent to the media, public and mostly to Anil Ambani that his elder brother was most likely the heir apparent while he saw himself as the righteous successor as much as Mukesh Ambani saw himself.

There was a lot of distance created between the two brothers because several “outsiders” like Anand Jain. A bitter feud resulted between Anil Ambani and Mr. Jain over issues like the “persons in contracts”. These “persons in contract” (as they were mentioned in the shareholders list) are nothing but 251 odd investment firms (as every company has) or ‘benamis’ as they are called in India. They protect the companies from takeover tycoons, from the prying eyes of the government, from tax and they also influence the share prices of the company. The fact that his elder brother had found a confidante in Mr. Anand Jain, sidelining him, about such a confidential matter was not taken lightly by Mr. Junior Ambani. These and many other incidents gave this conflict a final boost.


In the previous two stages the conditions are embedded, they are identified, actualized and perceptions are formed. What intervene between the perceptions and the behavior are the intentions.

Mr. Dhirubhai Ambani was a street fighter. For over decades, until his first paralytic stroke in 1986, Dhirubhai had fought to create a near-monopoly in petrochemicals and ensure that Reliance was miles above its competitors. The fighter’s instincts of the legendary patriarch, imbibed in the genes of his sons an “intention” to fight for their floor space i.e. to divide the Reliance pie and get the best share for themselves. If there was one similarity between the two brothers it was this that both saw themselves as the perfect descendent of their father’s empire. This comprised the major ‘intention’ for ensuing conflict.


The behavior stage includes the statements, actions and reactions made by the conflicting parties. These conflicting behaviors are usually overt attempts to implement each party’s intentions. This is the stage where “conflicts become visible”. After Dhirubhai Ambani’s death in 2002, there was an acute tension between his two sons. But it was in 18th November 2004, that the veil was lifted and the conflict became public news. This happened at a business bash organized by CNBC-TV 18.

‘For years, the media had believed this myth that Mukesh was an MBA from Stanford B-School. In all his official documents, CVs, loan applications and in the company’s dealings with Indian and foreign stock exchanges, there was always this one line about Mukesh graduating from Stanford. It was the Microsoft CEO, Steve Balmer, who blew the whistle on this one during his trip to India in November 2004.At the bash, Mukesh sang praises of the Microsoft chieftain and told everyone present that they were classmates in Stanford. Steve Balmer confirmed this fact but he also added that in their class there were two students who dropped out at the end of the first year - Mukesh and himself. Mukesh was visibly shaken after this revelation. Within minutes, he walked out, only to run into a journalist who was waiting to get some innocuous information from him. She told him that they weren’t going live on camera and hence, he could say whatever he wished to. His reply was a stunning public revelation of what was going on behind the scenes within the Ambani family. It was the first time any of the family members openly admitted there was a problem between the brothers’.

In the years to come, the conflict between the brothers intensified and they used the media as a vehicle to promote their respective camps. There were rumors that Reliance Mutual Fund, which is under Anil, pumped in money (Rs 39.62 Cr) into media, to run campaign against Mukesh Ambani. However, this was never proved and it turned out to be the work of a bunch of amateurs. In March 2005, Anil alleged his phones were being tapped. He even wrote letters to the Prime Minister and the Home Minister asking them to check this. The contents of the letters were leaked to the media. Both brothers met Sonia Gandhi, albeit for different reasons. During this time, Anil resigned from IPCL, a former public sector unit that was purchased by the Ambanis. He wrote a stinging resignation letter, addressed to his elder brother, attacking Mukesh’s aide Anand Jain. Anil’s sole intention was to estrange Jain from his elder brother .He acutely detested Jain, and blamed him for the present state of affairs. This was also largely played by the media. Nita Ambani’s active participation in Infocomm’s marketing campaigns was seen a threat by Anil who commented on it as “unprofessional”.


The action-replay interplay between the conflicting parties results in consequences.

In the case of the Ambanis, the end of the battle led to the division of empire as follows:

ž Mukesh Ambani got: IPCL and Reliance Industries Ltd - Oil and gas, petroleum refining and marketing, petrochemicals, textiles; main subsidiary Reliance Retail Limited and Reliance Industrial Infrastructure Limited.

ž Anil Ambani got: ADAG (Reliance Communications, Reliance Capital, Reliance Power, Infrastructure, Big Entertainment, Reliance Health, NIS Sparta, Mudra Communications and Reliance BPO & KPO).

Dramatis Personae:

Mukesh Ambani’s camp:

· Anand Jain-He has been criticized as Shakuni by Anil, admired as a die-hard-loyalist and friend by Mukesh, and cherished as a true devotee of the Ambani family by Nita Ambani.

· Manoj Modi-The brawn in Mukesh’s coterie, who got things done and also pushed one of the Reliance group companies into a long-drawn-out clash with policy makers.

· Sandeep Tandon-Joined Reliance as Group President (Taxation). Had initiated FERA raids against Tina Munim (Anil Ambani’s wife).

Anil Ambani’s camp:

· Amitabh Jhunjhunwala - Anil’s soft-spoken, smart, suave advisor, who had the ability to outsmart, outmaneuver and out - spin anyone else, including journalists.

· Tony Jesudasan-The efficient lobbyist who helped Anil convey his views in the media and bureaucratic circles.


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