Reliance truce means little in real terms

The new deal was possibly ordered by the political establishment and means little in real business terms, especially since it is inconceivable that Mukesh Ambani would get into finance and telecom

The press release issued on Sunday afternoon was matter-of-fact: “Reliance Industries Ltd. (RIL), led by Shri Mukesh D. Ambani, and Reliance ADA Group companies, Reliance Communications Ltd., Reliance Infrastructure Ltd., Reliance Natural Resources Ltd., and Reliance Capital Ltd., led by Shri Anil D. Ambani, have today approved and signed an Agreement canceling all existing non-compete arrangements entered into between the two groups in January 2006 pursuant to the scheme of reorganization of the Reliance Group and entered into a new simpler, Non Compete Agreement with respect to only Gas Based Power Generation.”

The reaction was of utter surprise across media, the corporate sector and market players. Does this mean that the two brothers are now bhai-bhai? Or does this mean that Anil has finally thrown in the towel in the high-stakes fight he was fighting? Analysts were quick to point how Mukesh Ambani is now free to get into telecom, a dream business for him until the fight broke out and he had to give it away to Anil. He can also get into power and then financial services. The market, of course, believes all this. Reliance was up 2.72% by the end of the day. Anil Ambani’s companies too made smart moves. Reliance Natural Resources was up 22.70% and Reliance Communications was up 10.99%.

This writer, whose first brush with a Reliance balance sheet was in 1984, 26 years ago, has a different view. Knowing Anil Ambani and Mukesh Ambani, their business motivations, personal bent and their current financial status, this truce is temporary and means very little in real business. According to a long-time Reliance watcher I spoke to, the truce was directed by political bigwigs who literally ordered them to arrive at some sort of settlement that can send a signal to the public that all is well now. “All this is drama. They have been asked to display friendship which is what they are doing.”

In which case, what does it mean, in business terms? For one, Anil Ambani can now look to sell a part of his telecom business which is what he tried to do when he struck a deal with MTN in 2008. That deal came unstuck because Mukesh Ambani scared MTN out of the deal by saying that he was holding the first right of refusal and therefore a deal with Reliance Communications would lead to a long-drawn legal fight. MTN subsequently tried to tie-up with Bharti.

Second, as part of the deal, Anil Ambani will now get some compensation for higher gas prices. This can come in the form of RNRL being taken over by Mukesh Ambani since RNRL is a shell company now.

What about the speculation regarding Mukesh Ambani’s moves? Those who know even a little bit about him (and there are so few of them) would find it hard to believe that he will enter a business as fragmented, risky and volatile as finance which offers so little potential for scalability. He has no interest in owning a mutual fund and fighting it out with 38 others. Mukesh Ambani running a stock-broking company? Nothing can be more ridiculous. The Reserve Bank of India will not give a license to an industry house and therefore he cannot set up a bank. Experts who have predicted that Mukesh Ambani will now enter finance have no clue as to how Mukesh Ambani’s mind works.

Those who know that the telecom business was dear to Mukesh Ambani (he was truly rueful when he had to give it up to Anil as part of the settlement) will assume that Mukesh Ambani will jump into telecom now that the non-compete clause is gone. Indeed, all analysts have broadcast this, today morning. Once again, it seems most unlikely to me that Mukesh Ambani would still be interested in a business whose business model is broken after five years of incredible growth. There are too many players aping each other. There is little competitive advantage today. Maybe Reliance will enter this business someday but only when several of its competitors have gone belly up.

The only possibility is Mukesh Ambani entering power which involves all the skills that Ambani is famous for: execution skills of mega-projects, massive fund-raising, managing the environment and so on.

So, if the friendship was all a drama and businesswise little has changed, will the constant behind-the-scenes sniping by the brothers at each other come to an end? Don’t bet on that either.

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COMMENTS

Ravishankar

7 years ago

Incisive. It does appear the media is over reaching iin its conclusions.

Java

7 years ago

I find it amazing that people actually bought-in to the story of a family split. THAT was the drama, which was driven by the huge money at stake in the KG transaction. Since the SC did not buy their story and let the government set a higher price than in their 2005 "family accord", there was no point in continuing with the pretense of a split, for which a cost was being paid in terms of lack of synergy.

It is ridiculous to suggest that the reconciliation was brought about by political bigwigs. Ambanis can influence political bigwigs, not the other way round.

Shibaji Dash

7 years ago

There is a positive underlayer to the comments of redoubtable Debashis Basu. Bisiness like politics also makes strange bedfellows.

Chetan Bhatia

7 years ago

I agree. What has happened for them to come together & first discuss about non - compete clause instead of the major issue at hand. I suppose SC has asked them to find a solution by themselves. Media entertained public with BREAKING NEWS for a couple of days. that's all.

Bharti, Vodafone, Idea move TDSAT against TRAI's 2G proposals

The trio have been voicing their criticism of TRAI's recommendations and have asked the government to dump the report, which according to them is "retrograde" and "absurd"

Three leading mobile operators have pre-empted a policy change by approaching Telecom Disputes Settlement & Appellate Tribunal (TDSAT) against telecom regulator Telecom Regulatory Authority of India’s (TRAI) recommendations on second generation (2G) spectrum, including a one-time fee for holding radio waves beyond 6.2 Mhz, reports PTI.

The operators to have approached telecom tribunal TDSAT are Bharti Airtel, Vodafone and Idea.

However, one of the operators said they cannot comment on the details of the challenge as the matter is 'sub-judice'.

The trio have been voicing their criticism of TRAI's recommendations and have asked the government to dump the report, which according to them are "retrograde" and "absurd".

The GSM operators are also critical of capping the spectrum at 8 MHz in all circles except Delhi and Mumbai where the limit is 10 MHz, as they think it would restrict future growth prospects.

These issues are crucial for incumbent mobile operators as paying higher fees for existing as well as future 2G spectrum will be a big financial burden for telcos, especially Bharti and Vodafone, as their profits have already come under pressure due to the intense tariff war.

TRAI had also come under their (GSM operators) attack for recommending refarming of spectrum as per which players holding spectrum in the 900 MHz band would be asked to return spectrum as and when their licence comes up for renewal.

These players are also opposing vacating 900 MHz spectrum because that will mean moving from a more efficient spectrum band to a less efficient one.

If the TRAI recommendations are accepted, operators like Bharti, whose licence expires in about two to three years, would have to return 2G spectrum in the 900 MHz band.

This would translate into companies incurring massive investments in shifting customers to the new frequency band and deploying networks for the new airwaves.

Shares of Bharti Airtel and Idea have dipped significantly since the TRAI recommendations on May 11.

All TRAI proposals are subject to the Department of Telecommunications (DoT) approval before being made into laws. The DoT has constituted an internal committee to look into the report.
 

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Environment Support Group alleges 'criminal' negligence in developing Mangalore airport

A series of Public Interest Litigations was fought by the ESG and an activist group to stop the construction of the second runway at Mangalore airport on the grounds that the design did not conform to the most basic national and international standards of airport design and minimum safeguards

Mangalore-based Environment Support Group (ESG) and Vimana Nildhana Vistarana Virodhi Samithi (Local Communities’ Alliance Against Airport Expansion) has alleged gross negligence and lack of safety standards as a main reason for the Air India plane crash that killed 158 passengers, including crew. There were 160 passengers plus six crew members on board the flight from Dubai to Mangalore, among them 19 children and four infants.

The Group had filed a number of public interest litigations (PILs) to stop the construction of the second runway at Mangalore airport on the grounds that the design did not conform to the most basic national and international standards of airport design. The PILs also highlighted that the airport does not conform to the most minimum safeguards for emergency situations—particularly during landings and takeoffs, and could not have emergency approach roads within a kilometre on all sides of the airport as required.

Despite making several presentations to authorities like the Director General of Civil Aviation, National Building Code of India and the Ministry of Civil Aviation, nobody paid any heed to the Group and the Samithi.

Both the ESG and the Samithi, through a variety of representations, demonstrated that the site chosen for expansion at Bajpe was surrounded by deep valleys on three sides of the runway and did not provide for emergency landing areas as required.

Raising a key concern that the second runway at Mangalore could not meet the standards required in dealing with an emergency, particularly during landings and takeoffs—a time when air crashes are most likely to happen—the ESG and the Samithi then filed a PIL in the Karnataka High Court.

The Airports Authority of India (AAI) filed an affidavit in the Court. AAI said: "It is submitted that as regards the apprehensions of the petitioner that the length and width of the runway is insufficient for a plane making an emergency landing, the same is without any basis. It is respectfully submitted that all the requirements as per the International Civil Aviation Organization (ICAO) recommendation will be met and that there has been no infringement of any of the recommendations and limitations therein."

Following AAI's submission, the Court dismissed the PIL filed by ESG and the Samithi. The Court said the expansion of the Bajpe airport project was at the initial stage and the second respondent (AAI) had in its objections mentioned above, unequivocally stated that all the safety measures, stated by the petitioners in their writ petition will be followed during the progress of the project and nothing can be said before the land is handed over to the second respondent.

"Considering these facts, we are of the view that the petitioners have rushed to this court before commencement of the project itself and the writ petition is premature. It is not, therefore, necessary to consider the various grounds taken by the petitioners in the writ petition to allege that the respondents have been proceeding with the project in a casual manner. There is nothing to doubt about the statement made by the second respondent in their objection statement and we are sure that the respondents will be taking all necessary measures under the different enactments etc., before proceeding with the project in question. The writ petition stands dismissed," the Court had said.

Later on, the ESG and the Samithi twice filed PILs in the Karnataka High Court, which were also dismissed. In their second exhaustively-researched PIL, the ESG raised many significant concerns citing that the second runway could not conform to ICAO norms. The PIL said, "Minimum Area for Stop-way: At page 155 of the said (ICAO) report, para 2-1 prescribes standards for providing the minimum area for a stop way and/or a clear way in the event an aircraft undershoots or over-runs the runway. For instance, if an aircraft has initiated take-off, and a technical flaw requires emergency stop, the standard prescribes the minimum area that should be kept free to enable such a stop. In the instant case, the runway distance itself is about 2,400 metres, and even if the area left is most cautiously utilised, what is left is only about 300 metres on each end of the runway. By the prescribed standard, this is far below the required distance needed for an emergency stop way. Therefore, the chances for an aircraft that has achieved the decision speed forcing an emergency stop are critically minimised, and the inevitable consequence could be that the plane would come crashing down the hillsides from a height of 80-100 metres on either side of the proposed runway."

However, the High Court dismissed the PIL saying that the authorities concerned have to complete all formalities as per law before commencement of the project. The ESG and the Samithi then approached the Supreme Court. In a ruling dated 7 February 2003, the apex court said, "We see no reason to interfere with the impugned order. Accordingly, the special leave petition is dismissed. We, however, clarify that in constructing the Airport, the Government shall comply with all applicable laws and also with environmental norms."

Seeing the Supreme Court ruling as a victory, the authorities began construction in 2004 and commissioned the second runway in 2006. "No techno-economic assessment, feasibility study, or even a comprehensive Environment Impact Assessment was ever done for the second runway. Simply put, the runway was built in comprehensive violation of applicable laws, standards and direction of the Supreme Court," the ESG alleged.

The Group further said that, today, India is frenetically building airports all over, and for all sorts of flaky reasons. Such is the political, bureaucratic and corporate pressure to build and expand airports that anyone questioning the rationale is quickly dubbed as a 'busybody', 'useless interloper', 'promoted by vested interests' and raising 'frivolous' concerns, it added.

"To ensure such incidents do not recur, we demand that the Union Minister of Civil Aviation orders an impartial Commission of Enquiry into the causative factors of this crash, especially investigating the absolute lack of conformance with basic runway design standards and emergency approach measures,” the ESG and the Samithi said in a release.

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COMMENTS

K B Patil

7 years ago

It is obvious to anyone with the barest minimum of commonsense that a table top runway is not safe. There is no margin for error. Does the DGCA think that pilots are robots? Even if that is so, it has been seen umpteen times that even machines can malfunction. Whether it is the Carlton towers fire tragedy in Bangalore or the Park Street fire tragedy in Kolkata or this crash, disdain for human life is the root cause of all these deaths. Our rulers clearly lack sensitivity towards their fellow citizens. That is the reason why they think they can get away with anything. A PIL is the only weapon for the common man. The tragedy is that the new Chief Justice does not seem too well disposed towards PILs!!

Menon

7 years ago

Will ESG file a public interest litigation/Conpempt petition against the AAI in general and specifically the authorities in power during the litigation period and the person who signed the affidavit - if alive so that the "concience" of the Court is "pricked" by the 158 dead passengers and they take exemplary action?

P.A.KUMAR

7 years ago

Govt should have taken care tolisten to the words of expert in the beginning itself while constructing the runway and making it international

REPLY

Menon

In Reply to P.A.KUMAR 7 years ago

They do not!! They are encouraged in this by the hyper technical, technically illiterate judges who put great store on what the Government says. The Judges should listen more to the technically competent and ask the right questions. They cannot agree with assurances of complience by Babus without having to answer line and verse of petitions. They should also be put to notice that in the event of their statements being proved false, wherever they are, they will be liable for the consequences. But the Courts never do that. :(
I have stood on both sides of the Bar so I know how it is.

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