Anil Ambani down,but far from out

Though the Supreme Court verdict has gone against the Anil Ambani group (ADAG) and share prices of group firms fell sharply on the exchanges....

Though the Supreme Court verdict has gone against the Anil Ambani group (ADAG) and share prices of group firms fell sharply on the exchanges,its not a lose-lose situation for the group. Analysts said the group would be able to work out a solution for a smooth takeoff of its planned power projects in spite of several uncertainties about the future pricing and quantity of gas available for its projects.

K Ravichandran,vice president and co-head,corp ratings,ICRA Ltd,says,It may,however,be noted that even if the basic gas price were to be as per the judgement,it may not materially weaken the cost competitiveness of the power plant which RNRL seeks to build at Dadri,as the levelled tariff should remain competitive at around Rs 3/Kwhr. However,there could be an impact on other gas consumers.

According to him,if RIL and RNRL are able to come to an agreement on the quantum of gas supply,EGoM may have to restructure gas allocation (around 93 mmscmd) already made on firm and fallback basis to several end consumers in power,fertilisers,consumer goods and durables sector etc. Hence,these consumers may suffer a reduction in gas availability once RNRLs Dadri power plant is ready,which,however,may take three to four years for commissioning. By then,though,the anticipated improvement in the availability of gas from domestic fields should provide comfort to such consumers.

Deven Choksey,managing director,KR Choksey Securities Ltd,said,It is purely the governments decision to sell the gas at $4.2 mmBtu. I dont think it went in favour of Mukesh either. The Supreme Court has to uphold the corporate governance practices. Had it (verdict) supported the family agreement,then probably the corporate governance practices in the future would have come into serious trouble.

A section of analysts say RNRL would be severely hit by the verdict. RNRL shares fell by 23 per cent after the Supreme Court verdict. RIL will dictate terms to RNRL. It is to be seen whether RNRL will be able to get gas from the K-G basin in the next few years. Anil groups Dadri project is yet to take off. What will RNRL do now? said an analyst who preferred anonymity.

The verdict gives a clear message that national interests override private interests and to that extent should stand as a benchmark for deciding future disputes. While the fine print of the judgement is awaited,it is clear that RIL will by and large be positively impacted,as there seems to be no uncertainty on the basic selling price,which will remain at $4.2/ mmBtu. Key uncertain variables are quantity of gas to be sold and tenure of agreement with RNRL,which might be renegotiated, said an analyst.

ADAG chairman Anil Ambani put a brave face notwithstanding the fact that his companies will be at the mercy of Reliance Industries controlled by his brother Mukesh Ambani. At Reliance Power,we remain committed to emerging as Indias largest power producer,with fast-track execution of over 35,000 MW of greenfield power generation capacity,and will continue to work towards the all-round development of the power sector in India. Reliance Powers gas-based power projects will provide 8000 MW of clean green power and the Government of India has already rightly recognised that consumption of natural gas for the power sector as the second highest priority for the nation as per its gas utilisation policy.

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We respect the judgment of the Supreme Court and note that the Supreme Court has safeguarded the interests of over 25 lakh RNRL shareholders by giving the guidelines for an expeditious finalisation of the gas supply agreement between RIL and RNRL, Ambani said.