0735

20 July 2009

New Delhi

When India's largest corporation, Reliance Industries, was divided between the brothers Anil and Mukesh Ambani, the oil and gas assets went to Mukesh, but the power plants which were to run on the gas went to Anil. 

Fuel supply to his plants was protected under an agreement which provided gas at 2.34 dollars per unit for 17 years. With the price of gas now ruling at over 4 dollars, Mukesh wanted out, and the matter went to court. The Bombay High Court ruled that the agreement needed to be honoured.

Round 1 - advantage Anil.

Mukesh appealed to the Supreme Court, which is now hearing the matter. On Saturday, the Indian government threw its oar in, and submitted to the court that natural gas is a national asset, and the brothers should not be allowed to treat the disposition of gas flow as a commercial matter.

The government move is intriguing; the dispute has been public knowledge for over two years now, and our political masters could have made this claim a long time ago. Aside from that, their motivation could stem from one of three positions:

- by saying that the status quo (of Anil getting the gas) is not acceptable, petroleum minister Murli Deora is coming down heavily in favour of Mukesh Ambani; this is the market consensus.

- creating a situation where the brothers are forced to arbitrate; guess who the arbitrators will be, and imagine what their fee will be.

- that the 'aam aadmi' accent of the revitalised Congress Party actually intends to assert governmental control over energy, irrespective of who took the risk of exploration, discovery and exploitation.

Either which way, these are clear signals that the regime in power is going to be an increasingly interventionist one, and that markets are going to be held hostage to the whims of political winds.