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Ambani brothers’ gas dispute ups India investment risks

in.reuters.com

Ambani brothers’ gas dispute ups India investment risks

MUMBAI – july 15 – The wrangle over an energy deal between billionaire Ambani brothers has highlighted the risks inherent in an economy dominated by big family businesses and spurred calls for the government to intervene.

The latest dispute between the feuding brothers could discourage investment in India’s energy sector as the country scrambles to shore up its energy security.

It also tests governance standards for a nation that ranks a lowly 180 when it comes to enforcing contracts on the World Bank’s index on ease of doing business. Only Benin ranks worse.

The near-three-year battle between India’s top conglomerate Reliance Industries, headed by Mukesh Ambani, 52, and Reliance Natural Resources, led by estranged brother Anil, 50, will be heard in Supreme Court on July 20.

The two sides are fighting over terms of a gas-supply agreement struck when the Reliance empire was split in 2005. The Bombay High Court ruled last month that Reliance Industries should supply gas to Reliance Natural at nearly half the price it had set in an interim order in January.

The gas in dispute comes from the vast Krishna Godavari (KG) basin, and some in India have said terms of access to such a crucial resource in an energy-starved country should not be left in private hands.

“If a private MOU (memorandum of understanding) can involve something that belongs in the public domain, it gives the sense that large corporations can bend rules and influence policy — that’s surely got to be the biggest political risk,” said Seema Desai, an analyst at risk consultancy Eurasia Group in London.

The government has largely been silent, which could make investors wary, said strategist Arun Kejriwal at KRIS Research.

“It sends a message that the law is different for different people. This is not trivial, it is a matter of national interest,” said Kejriwal.

The chief minister of the state of Andhra Pradesh, where the KG basin is located, has also called for New Delhi to step in.

“The dispute over sharing of gas is not an issue to be settled by their mother. It is for the Centre (central government) to decide who should get the gas at what price,” Y.S. Rajasekhar said on Sunday, according to the Times of India.

FAMILY BUSINESS

Big business families in India, as in many other countries, have long played an outsized role in the broader economy and have used political patronage to smooth their way. Some analysts say that too much is at stake now for the government to stay silent.

“The government’s call is important … the verdict could have an impact on the gas-allocation policy as it is likely to impact the flow of gas to priority sectors going ahead,” Angel Broking wrote in a recent client note.

Macquarie estimates the proposed oil and gas production from just 4 percent of the KG-D6 block and Cairn Energy’s Rajasthan block could add $20 billion to India’s GDP, cut its oil imports by 23 percent and add $59 billion in government profit-sharing and taxes.

Disputes like this “may dissuade future exploration and exploitation of India’s mammoth upstream potential,” it said.

This is not the first time that a fight between two of the wealthiest men in the world has grabbed newspaper headlines and sparked debate about the balance of power in corporate India. Mukesh was ranked 7th by Forbes in its list of global billionaires in March, with a net worth of $19.5 billion. Anil was at No. 34 on the list, with a net worth of $10.1 billion.

Reliance Industries last year cited a first right of refusal clause in the agreement to sink a bid by Anil Ambani’s Reliance Communications for a merger with South Africa’s MTN.

The details of the family settlement, which was brokered by the Ambanis’ mother, have not been made public, and at least a dozen issues still need resolution, analysts say, ranging from properties to shares in companies.

But some expect the rule of law to ultimately prevail.

“Family disputes among corporate houses in India, and the world over, are not new,” said Manoj Vohra, director of the Economist Intelligence Unit in India.

“The rule of law in India is better than in several developing economies. Opportunities are massive and fundamental in nature and unlikely to be clouded by this slugfest.”

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Floods kill 200 in Karnataka, Andhra Pradesh

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Floods kill 200 in Karnataka, Andhra Pradesh

BANGALORE (Reuters) – Floods triggered by heavy rains have killed at least 200 people in the past five days in southern India, destroyed standing crops and left tens of thousands of people homeless, officials said on Sunday.

At least 167 people have been killed in Karnataka, where several rivers burst their mud embankments following heavy rains and swept away houses.

“There is death and destruction all around us,” Basavaraj Bommai, a senior government minister said in Bangalore, the capital of the southern state, which is also an IT hub.

Authorities said vast areas of agricultural land, including sugarcane and paddy fields were under water in the state.

“The crop loss estimate is being ascertained… Our top priority is to provide relief to thousands of homeless people,” the state’s Home (Interior) Minister V.S.Acharya said on Sunday.

Acharya said most of the victims died in house collapses or were swept away by the flood waters.

More than 100,000 people were homeless and television pictures showed hundreds of people waving at helicopters carrying relief materials from rooftops. Some were seen clinging on to tree branches.

In the neighbouring state of Andhra Pradesh, at least 33 people have died and more than 1.8 million people have been affected by the floods, officials said.

The trading and cotton-growing town of Kurnool, which is dotted with ancient forts was the worst affected, where 15 people have died in the past two days and thousands affected, officials said.

“We have evacuated 40,000 people in Kurnool town alone,” said Dinesh Kumar, a senior disaster management official said in Hyderabad, the capital of Andhra Pradesh state.

Officials said the death toll could increase as 5,000 people were still trapped in flood-hit remote areas, and rescuers were yet to reach many villages.

Almost 1,000 people have been killed by severe flooding in India this year, while tens of thousands more have lost their homes and seen large swathes of their farmland devastated, according to the Red Cross.

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