To a very large extent, Mukesh Ambani is responsible for Anil Ambani’s fate in 2 ways.
ADAG had a deal with RIL, to supply gas at cheaper rate from KG-D6 to Reliance Natural Resources. But Mukesh used his connections in government to scuttle his obligations to Anil, and did not give the gas to Anil. Anil filed a case against this, saying, if there was a loss to government, RIL should bear it. Which was a strong case. But SC ruled in a weird judgement that the Production Sharing Contract RIL signed with the government would rule the private agreement between RIL and RNR also!
Just imagine - PSC says give X% to government, rest is yours. SC said that even if the rest is yours, you can’t do anything with it as per your choice. You have to sell it at government mandated price of $4.2/MBTU only.
This judgement screwed ADAG badly, as almost 30% of the family settlement was struck in the gas deal.
When ADAG was in shock, Mukesh did his second move. The 2006 family settlement did not allow Mukesh to enter Telecom for 5 years. But the BWA auctions in July 2010 were his only chance to enter. Mukesh could not afford to miss that.
When ADAG was under pressure, he offered them a “deal” - end the non-compete, and I will arrange the gas for you. ADAG had no choice, they agreed to end non-compete.
RIL bid for BWA spectrum through Nahata’s of HFCL. And Jio was born.
When it came to honoring the promise to deliver gas, RIL tried to gold plate the expenses in KG-D6, to generate the money for this. But government saw through this, and refused to allow it.
Ultimately, KG-D6 production was reduced, as RIL tried to pressure the government. But government didn’t budge. RIL stopped exploration, etc. But to no avail.
Even today, the largest asset of RIL, even bigger than Jio, is actually KG-D6. But it is floundering as a result of this wrangling.
But in a queer twist of fate, Mukesh Ambani decision to not invest in KG-D6 at a time when gas was valuable, turned out to be prescient. In 2020, gas has become so cheap, it is being sold at negative rates!!
Mukesh has navigated the world of oil and gas extremely well, and also that of telecom. But his brother became collateral damage in this!
Of course, Anil Ambani has also hurt himself quite badly by his political choices, hobnobbing with Amar Singh, at a time when Amar Singh himself was irrelevant at best and damaging at worst.
Anil also paid the price for the technology choice made by Mukesh to go with CDMA originally, for RCOM. The royalty squeeze by Qualcomm, forced RCOM to run 2 parallel networks - which would never be possible in the hyper-competitive Telecom industry.
A lot of the financial overleverage that eventually tripped up Anil, can be traced back to these 2 events that eventually destroyed Reliance Natural Resources (and hence Reliance Energy), and Reliance Communications.
But there is a bigger lesson. These businesses were cash guzzling, high gestation period businesses. With RIL printing the cash, they could survive - without RIL, they didn’t stand much of a chance.
Jio and RRetail have this advantage - and they have used it to the hilt.
ADAG had a deal with RIL, to supply gas at cheaper rate from KG-D6 to Reliance Natural Resources. But Mukesh used his connections in government to scuttle his obligations to Anil, and did not give the gas to Anil. Anil filed a case against this, saying, if there was a loss to government, RIL should bear it. Which was a strong case. But SC ruled in a weird judgement that the Production Sharing Contract RIL signed with the government would rule the private agreement between RIL and RNR also!
Just imagine - PSC says give X% to government, rest is yours. SC said that even if the rest is yours, you can’t do anything with it as per your choice. You have to sell it at government mandated price of $4.2/MBTU only.
This judgement screwed ADAG badly, as almost 30% of the family settlement was struck in the gas deal.
When ADAG was in shock, Mukesh did his second move. The 2006 family settlement did not allow Mukesh to enter Telecom for 5 years. But the BWA auctions in July 2010 were his only chance to enter. Mukesh could not afford to miss that.
When ADAG was under pressure, he offered them a “deal” - end the non-compete, and I will arrange the gas for you. ADAG had no choice, they agreed to end non-compete.
RIL bid for BWA spectrum through Nahata’s of HFCL. And Jio was born.
When it came to honoring the promise to deliver gas, RIL tried to gold plate the expenses in KG-D6, to generate the money for this. But government saw through this, and refused to allow it.
Ultimately, KG-D6 production was reduced, as RIL tried to pressure the government. But government didn’t budge. RIL stopped exploration, etc. But to no avail.
Even today, the largest asset of RIL, even bigger than Jio, is actually KG-D6. But it is floundering as a result of this wrangling.
But in a queer twist of fate, Mukesh Ambani decision to not invest in KG-D6 at a time when gas was valuable, turned out to be prescient. In 2020, gas has become so cheap, it is being sold at negative rates!!
Mukesh has navigated the world of oil and gas extremely well, and also that of telecom. But his brother became collateral damage in this!
Of course, Anil Ambani has also hurt himself quite badly by his political choices, hobnobbing with Amar Singh, at a time when Amar Singh himself was irrelevant at best and damaging at worst.
Anil also paid the price for the technology choice made by Mukesh to go with CDMA originally, for RCOM. The royalty squeeze by Qualcomm, forced RCOM to run 2 parallel networks - which would never be possible in the hyper-competitive Telecom industry.
A lot of the financial overleverage that eventually tripped up Anil, can be traced back to these 2 events that eventually destroyed Reliance Natural Resources (and hence Reliance Energy), and Reliance Communications.
But there is a bigger lesson. These businesses were cash guzzling, high gestation period businesses. With RIL printing the cash, they could survive - without RIL, they didn’t stand much of a chance.
Jio and RRetail have this advantage - and they have used it to the hilt.
Analysis.