The Billion Dollar Deal

The business world was upturned by the recent development in the Indian subcontinent. India’s two Billionaire brothers, Anil and Mukesh Ambani, finally ended up reconciling on 30th May 2010. Hoping that these steps will prove to eliminate the friction developed between the two in the long running feud, Reliance Industries Ltd (RIL) and Reliance Natural Resources Ltd. (RNRL) sign the gas pact. RIL, owned by Mukesh Ambani, has agreed to supply gas to RNRL headed by his younger brother Anil Ambani, dissolving yet another issue that had been plaguing the siblings for a long time.

The pact was publicly announced in a press statement on 25th June 2010 though with scarce details. According to sources, RIL will supply the gas at the government-approved rate of $4.20 per million metric British thermal units (mmBtu). On this, Anil Ambani stated that his company will approach Indian Government for quick allocation of natural gas supply so that immediate implementation may be carried out. This will help Anil Dhirubhai Ambani Group (ADAG) to achieve the final closure of future power plants. Uncertain about the duration of gas supplies, it is being stated that RIL will continue its supply till 2022, prima facie. Later RIL will itself indulge in gas-fired power business.

Yet another publicized negotiation which might as well prove to be of great benefit for the Indian economy, the signing of the gas pact will help Reliance Power (a part of ADAG). Reliance Power will be able to set up around 21,000 mw of gas-fired power generation in various parts of the country. Apart from setting up 8000 mw plant at Dadri, near Delhi, the company has decided to functionalise 400-mw plant at Sambalpur in Andhra Pradesh and a 4,000-mw plant in Shahpur, Maharashtra. Besides all these plans, the profit being accumulated by both the brothers is tremendous. For RNRL the stocks close 3.2% higher at Rs 65.95 while the RIL gained 1.1% and closed at Rs 1,063.25. Not only this but rise in the state set fuel prices and its exposure to the market led to increase in the RIL stocks. Following the streak, RNRL stock has risen by about 60% in a month from Rs 42.50 on 21st May 2010.

Keeping separate the corporate part of the deal, the public announcement was followed by a Supreme Court judgment. As the previous agreement was based on a price of $2.34 per mmBtu, the court advised the brothers to renegotiate and let the government prescribed prices prevail over it. Agreeing to the judiciary orders, the Ambani brothers completed the task of actuating the agreement signed four years ago. To this Mukesh Ambani, elder of the two and owner of RIL had to state only one simple fact- He cited that as soon as the ADAG power plants are well established his company would stop the supply of gases, as per the government allocation. So in simple words, ADAG will not only be supported in rooting itself in the gas-fired power generations but will also illumine India with its success in the business sector.

Nupur Paul

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