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Ambanis cancel non-compete agreements in major step towards reconciliation

Mukesh Ambani
Mukesh Ambani

In what is clearly a major step towards reconciliation of their long-standing differences, billionaire Mukesh Ambani and his estranged younger brother Anil Ambani today cancelled all existing non-compete arrangements between their two groups of companies.

Mukesh Ambani's Reliance Industries Limited (RIL), an energy and petrochemicals major, and the Reliance ADA Group companies headed by Ail Ambani approved and signed the agreement today in this regard, the two groups said.

These arrangements were entered into between the two groups in January 2006 pursuant to the scheme of reorganisation of the Reliance Group founded by their late father Dhirubhai Ambani.

In identical statements, the two groups said they had entered into a new, simpler non-compete agreement with respect to only gas-based power generation.

The agreements have been approved by the Board of Directors of RIL and the respective Reliance ADA Group companies, the statement said.

The Reliance Anil Dhirubhai Ambani (ADA) Group companies which are part of today's agreement are Reliance Communications Ltd., Reliance Infrastructure Ltd., Reliance Natural Resources Ltd., and Reliance Capital Ltd.

According to the release, the cancellation of the existing non-compete agreements would provide enhanced operational and financial flexibility to both groups, and greater ability to participate in high growth sectors of the Indian economy, such as oil and gas, petrochemicals, telecommunications, power, and financial services.

However, RIL has agreed not to enter into Gas Based Power Generation Business for the period upto March 31, 2022. An appropriate exception has been made in respect of RIL’s captive gas based power plants.

"These developments will eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations," the statement said.

It said RIL and Reliance Natural Resources Ltd. (RNRL) would expeditiously negotiate Gas Supply arrangements in accordance with the recent orders of the Supreme Court of India. "We hope to conclude these negotiations very soon," it said.

"RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall shareholder value for shareholders of both groups," the statement said.

"Reliance Industries and Reliance ADA Group are committed to fulfilling the vision of their legendary founder, Mr Dhirubhai Ambani, and contributing to the future growth of the Indian economy," the release added.

Today's announcement came a little over two weeks after the Supreme Court had ruled 2-1 in favour of RIL in its dispute over gas price with RNRL.

The two Ambani brothers have been involved in an unseemly battle over the terms of a memorandum of understanding (MoU) that they signed when the Reliance empire, built by their father Dhirubhai Ambani, was split between them in 2005 after a prolonged public spat over ownership issues following his death in July 2002.

The MoU said RIL would supply 28 mmscmd of gas from its Krishna Godavari (KG) D-6 block to RNRL on the same terms that RIL would supply gas to the public sector power major NTPC Ltd, subject to government approval.

RIL had earlier emerged as the lowest bidder for supplying gas to NTPC with its offer of a price of $ 2.34 per mmBtu. RIL and NTPC, however, are yet to sign a formal gas sale and purchase agreement, with the matter now in the Bombay High Court, after RIL objected to some of the conditions, especially those relating to liability, in the draft agreement.

Anil Ambani
Anil Ambani

RIL and Niko Resources of Canada had won the exploration contract for the block under the government's New Exploration Licensing Policy (NELP). RIL owns a 90 per cent stake in the project while Niko holds the remaining ten per cent.

The Bombay High Court ruled in June last year that RIL should supply gas to RNRL at $ 2.34 per million metric British thermal unit (mmBtu), which is nearly half the $ 4.20 price it had set in an interim order in January.

The matter then went to the Supreme Court, where RIL had gone in for an appeal and the Union Ministry of Petroleum and Natural Gas had filed a special leave petition (SLP).

RIL had argued that the private MoU between the two brothers could not take precedence over Government policy, which determines who can receive gas and at what price.

RNRL, on the other hand, claimed otherwise and had some months ago issued a series of front-page advertisements in leading newspapers accusing the Centre of taking the side of RIL in the matter.

In its verdict, the Supreme Court ruled that the production sharing contract (PSC) between the operator of the exploration block and the Government would override all other agreements. It held that the MoU between the two brothers was not legally binding in this regard.

The judge also told RIL and RNRL to renegotiate their gas sale and purchase deal within a period of six weeks. If that did not work out, the matter could be taken to the Company Law Board.

When the Reliance empire was split between the two brothers, Mukesh Ambani got Reliance Industries Limited (RIL), with interests in oil and gas exploration and refining as well as petrochemicals. The company also has major interests in retail and life sciences, among other areas.

Anil Ambani, on the other hand, got Reliance Communications, Reliance Power and Reliance , among other companies.

Today's announcement means that the ADA group can foray into sectors such as oil and gas exploration and production, refining, petrochemicals and retail, if it wishes to.

Likewise, RIL can enter areas such as telecommunications, coal-based power generation, transmission and distribution of power, financial services, infrastructure and media and entertainment.

NNN

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