Ambani Case Ruling May Decide Fate of Indian Energy Investments

May 7 (Bloomberg) -- India’s Supreme Court will rule today on a gas dispute between billionaire Mukesh Ambani and his estranged brother, a decision that may determine whether the energy-starved nation will be able to attract explorers.

The court’s verdict will come on appeals filed after a lower court ordered Mukesh’s Reliance Industries Ltd., India’s most valuable company, to honor a 2005 accord to sell gas from the nation’s largest field at a discount to Reliance Natural Resources Ltd., controlled by younger brother Anil Ambani, 50.

The judgment may resolve the feud between the world’s richest brothers over a field with $38 billion worth of reserves. India’s oil regulator said last year’s auction of oil and gas fields received few offers because of disputes over production sharing contracts awarded in previous rounds and the global recession.

“Its main significance is the extent to which it can provide comfort to an industry that has international players,” said Prashanth Sabeshan, an independent Singapore-based lawyer who has advised energy companies in India. “Can you sell gas at an agreed price in India?”

Reliance Natural had its biggest monthly gain in almost a year in April as the court neared its verdict. The stock swung between gains and losses yesterday and closed 0.2 percent lower at 68.35 rupees. Reliance Industries fell 1.3 percent, the fifth day of declines, in line with a global selloff in equities.

Energy companies bid for half the oil and gas blocks on offer during an international auction, which closed in October as the Ambani gas dispute made its way to the Supreme Court. Reliance Industries, which won the KG-D6 field in an auction a decade ago, shunned the sale. India received bids for 36 of the 70 areas offered last year.

Investors Seek Clarity

The row contributed to the unease of international energy companies over the lack of clarity in India’s production sharing contracts between the government and explorers that govern pricing and revenue sharing from oil and gas blocks.

BG Group Plc, the U.K.’s third-largest natural-gas producer, withdrew from a block in April with state-run Oil & Natural Gas Corp., citing the absence of clear documentation on the validity of its contract.

“Investors have been waiting so long for a verdict,” said Taina Erajuuri, who helps manage more than 1 billion euros ($1.3 billion) of emerging market stocks at Helsinki-based Fim Asset Management, including Reliance Industries. “There is this need for clarity, one way or the other.”

India, which imports more than 75 percent of its crude oil needs, is keen to attract investment to reduce dependence on overseas purchases and develop domestic supplies critical to sustaining its expansion. The world’s second-fastest growing major economy is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.

Family Dispute

The dispute stems from a 2005 agreement dividing the Reliance business, brokered by Mukesh, 53, and Anil’s mother after the family patriarch, Dhirubhai Ambani, died without leaving a will. The accord required Reliance Industries to supply 28 million cubic meters of gas a day for 17 years at $2.34 per million British thermal units.

The government subsequently set a price of $4.20 per million British thermal units in September 2007 for gas contracts in the Krishna Godavari basin.

Anil’s Reliance Natural told the Supreme Court that the government’s decision on gas prices could not be implemented retroactively. Reliance Industries countered that it cannot comply with the contract because gas can neither be sold nor bought by either party without the government’s approval.

Proposed Plant

The government maintains the state alone has the power to fix gas prices, assign customers and approve gas sales. In an affidavit filed on Sept. 1, the government said it wasn’t interested in the brothers’ agreement and only wants to protect its rights as the owner of the gas.

The Bombay High Court ordered Reliance Industries on June 15 to honor the agreement and supply the fuel, which was meant for a power plant near New Delhi that has yet to be constructed. The Supreme Court ruling is scheduled for 10:30 a.m. local time today, according to the court’s website.

Losing the case could shave as much as $600 million off Reliance Industries’ annual earnings, Moody’s Investors Service said Oct. 19.

Reliance Industries started production from the KG-D6 field in April last year and produces about 64 million cubic meters of gas a day, Executive Director P.M.S. Prasad said in March. All of the fuel is sold to customers including fertilizer plants, power stations and chemical plants selected by the government. Peak production of 80 million cubic meters a day may be reached this year, doubling the availability of gas in the country.

The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.