Two estranged brothers and a Canadian oil company

Vol 10, PW 2 (18 May 06) People & Policy

Mind games can be a childish affair.

Especially if they are played out between two estranged brothers and heirs to one of the most powerful business empires in Indian corporate history: Reliance. More mindless is when the answer to the game sits with an oil company in far away Calgary: Niko Resources.

At stake is the price at which Mukesh Ambani controlled Reliance Industries will sell gas from its prolific D-6 block to brother Anil Ambani and owner of Reliance Natural Resources. Fact one: early this month, Reliance Industries wrote to the oil ministry asking it to approve the sale price of $2.98 per mmbtu for D-6 gas to RNR - exactly the same price at which it promised the gas to NTPC.

Fact two: under the PSC for D-6, ministry approval for any gas pricing formula is obligatory. Sadly for Reliance Industries (or gladly, we dont know with any certainty), the ministry is refusing to approve the formula unless it makes the request jointly with Niko which is unlikely to agree to a price that is less than half the market rate.

A ministry source is clear: under the PSC the contractor must sign any letter seeking approval of the gas pricing formula and here the contractor is not Reliance alone, but the Reliance-Niko joint venture where Reliance owns 90% of D-6 and Niko owns 10%. Normally, that shouldnt be a problem, if it werent for the fact that Reliance and Niko are allergic to each other.

If Reliance had its way, Niko would have been out of the D-6 venture long ago. Also well known is that Mukesh despite his letter to the ministry - is loath to sell gas so cheaply to his brother.

Could it be that he anticipated the ministry response knowing full well Niko would refuse Whatever the truth, the power ministry and NTPC are not amused. On 3rd May, NTPC chairman T Sankarlingam wrote to his boss and power secretary RV Shahi asking him to intervene with the oil ministry to ensure that NTPCs rights are not prejudiced in any manner whatsoever, while deciding on the gas price formula for Reliance Natural Resources.

Shahi in turn has written to oil secretary MS Srinivasan citing NTPCs concerns. Its not yet clear if anyone has thought of writing to Niko ()