By Shantanu Guha Ray, Delhi

The world’s richest brothers are locking horns yet again – and this time, it is over natural gas.

The latest spat between Mukesh Ambani and Anil Ambani, who control India’s Reliance group of industries, could turn out to be the most unsavoury yet and hinder efforts to solve the country’s chronic energy shortage.

This week, Anil Ambani, the 50-year-old younger brother, described the government as "partisan and biased" towards his elder brother, Mukesh.

At the heart of the latest battle between the siblings is the natural gas that was discovered by Reliance Industries in the Krishna Godavari basin off India’s eastern coast in 2002, three years before the brothers parte ways.

The Reliance empire was divided between the two brothers in 2005 after a bitter seven-month feud.

In a family pact vetted and supervised by the brothers’ mother in 2005, Mukesh Ambani’s Reliance Industries Limited (RIL) was to supply 28 million cubic meters of gas a day at $2.34 per million units to Anil Ambani’s Reliance Natural Resources Limited (RNRL) for 17 years.

Pricing feud

This price was lower than $4.20 per million units set by the government in 2006 for all buyers of gas from the basin.

Anil Ambani has not accepted the higher selling price set by the government, citing the agreement with his elder brother.

On 15 June, his company won a case in the Bombay High Court, asking his elder brother’s company to honour the family agreement.

Mukesh Ambani has appealed against the judgement in the Supreme Court – the court will hear the dispute on 1 September.

India’s oil ministry has also become embroiled in the controversy – federal oil minister Murli Deora has been criticised by Anil Ambani for allegedly siding with his elder brother.

In return, Mr Deora has said gas is a national property and belongs to the people of India – "It really doesn’t belong to them [Mukesh and Anil Ambani]," he told reporters.

The dispute is impeding efforts by the government to harness India’s natural gas reserves to help tide over its energy crunch.

Three companies – RIL, the state-owned Oil and Natural Gas Corporation (ONGC) and Gujarat State Petroleum Corporation (GSPC) – are investing $30bn to produce gas from the Krishna Godavari basin.

All the three companies have discovered gas – and some oil- in three different blocks.

RIL plans to spend $12 billion on producing and transporting the gas across the country while the state-owned ONGC has announced a $3 billion investment.

The Krishna Godavari basin off the Andhra Pradesh coast is described as the North Sea of India due to its immense gas prospects.

The basin is likely to produce 120 million cubic metres per day (mcmd) of gas, four times the gas and 30% cheaper than the gas India would have received through the much-delayed Iran-Pakistan-India pipeline.

Once the entire gas comes on stream, it will have a huge impact on the country’s fertiliser and power companies.

Energy needs

India, Asia’s third largest oil importer, could easily save at least $20 billion off its surging oil import bill that crossed a whopping $80 billion last year.

Power and fertiliser plant owners, which consume 70% of the available gas in India, are optimistic that the Krishna Godavari basin gas will help them operate at full capacity.

Currently, they mostly operate at 50-60% of their capacity because of inadequate gas.

The fertiliser industry, which has not seen any new investments in the last decade, could increase capacity to 22 million tonnes in two years from the current 20 million tonnes once more gas becomes available. Presently, the industry needs 41 mcmd of gas, but gets only 28 mcmd.

Once the gas from Krishna Godavari basin begins to flow – possibly after 2013 – it can add at least 10,000MW to India’s power output. The figure is more than half the country’s current peak power deficit.

The World Bank estimates that power shortages deter the development process in India where more than 400 million people lack electricity and supplies fall short of peak demand by 16.6%.

The writer is business editor of Tehelka magazine

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