Date:02/12/2004 URL: http://www.thehindubusinessline.com/2004/12/02/stories/2004120201910200.htm

Back Reliance row: Will shareholder interests be the first casualty?

Raghuvir Srinivasan

Chennai , Dec. 1

IS the conflict between the Ambani brothers beginning to spill over into the business domain of the group companies affecting the larger shareholder interests?

It does appear so at least in the case of Reliance Energy if the developments at its board meeting on Tuesday are anything to go by.

The concern stems from the decision of the Reliance Energy board to "consult" the board of its promoter company and principal shareholder, Reliance Industries, now firmly under the control of Mr Mukesh Ambani.

There is more than one interpretation possible of the move and all of them point in one direction: that the 3,740-MW gas-based power project planned by Reliance Energy in Uttar Pradesh is headed for trouble. Indeed, the project appears to have turned a pawn in the battle between the two brothers.

This newspaper reported on Tuesday that the Reliance Industries board has not taken kindly to the commitment for the project made by Mr Anil Ambani without taking it into confidence.

It can be argued that the project belongs to Reliance Energy and that there is no need really to consult Reliance Industries, which is only a shareholder in the former, albeit with majority holding. Its interests on the Reliance Energy board are supposed to be taken care of by its representatives one of whom is Mr Anil Ambani himself.

If Reliance Industries argues that as a shareholder it has to be consulted on every project then so can the other common shareholders. It simply does not work that way and it would be impractical to argue that a company should secure shareholder permission for every project that it plans in the routine course of its business.

In this context, the Reliance Energy board's decision to "consult" Reliance Industries on its future prospects appears to be a clever move by Mr Anil Ambani to force his elder brother to take a clear stand on the issue.

If Reliance Industries supports the project then it would be a victory for Mr Anil Ambani. The other option for Reliance Industries would be to oppose the project but this may prove tricky given the larger political overtones surrounding the project.

The Reliance group has traditionally kept away from being identified as pro or anti any political party and managed to be in the good books of all of them. However, Reliance Industries may end up antagonising the present ruling dispensation in Uttar Pradesh if it were to oppose the project now. A tricky situation indeed.

However, there could be a third alternative which is to lob the ball back at Mr Anil Ambani by pointing out that it is really a project that belongs to Reliance Energy and its board will have to take a decision on it. Reliance Industries can still cause some problems for the project as it controls the feedstock, natural gas, from the gas reserve in the KG basin. In fact, there are reports that Reliance Industries will not be able to supply gas from the field before 2008 when Reliance Energy has been planning to commission its project by 2006.

The bottom line is that the business prospects of Reliance Energy are now under a cloud. The routine business of the latter may continue without hiccups but the long-term plans and projects certainly appear uncertain at this point in time. Clarity cannot emerge unless Mr Mukesh Ambani and Mr Anil Ambani patch up their differences or clearly demarcate their territories in what would be a complete separation.