Infrastructure

No-risk capitalism

Print edition : March 21, 2014

A stretch of the Airport Metro Express line in Delhi, a file picture. When it did not make profits, Delhi Airport Metro Express Pvt. Ltd, a subsidiary of Reliance Infrastructure headed by Anil Dhirubhai Ambani, withdrew from the project citing technical probles and financial imprudence of the project. Photo: V.V. Krishnan

Reliance has used laws and its influence on politicians to further its business interests.

IN THE UNAUTHORISED BIOGRAPHY The Polyester Prince, written by the Australian journalist Hamish McDonald, the founder of the Reliance empire, Dhirubhai Ambani, was quoted as saying: “I don’t break laws; I make laws.” Published in 1998, the biography was pulped in India as the Ambanis threatened to sue the publishers for anything they perceived as defamatory in the book. The Polyester Prince, full of interesting anecdotes about the Ambanis, is said to be an accurate portrayal of a highly successful businessman who could use the pre-liberalisation licence raj to his advantage. More than anything else, it sums up the Reliance group’s tryst with Indian governance systems and narrates in detail the now-famous controversies over licensed capacities, export manipulation and share switching. It narrates how Reliance made public equities a cult in Indian businesses and how it nearly demolished Mumbai’s Wadia family, known for its company Bombay Dyeing.

That Ambani expressed confidence about his crucial role in making laws to suit his interests is common knowledge, but the power he exerted over the Indian polity and economy can be explained from the fact that the book was republished as Ambani and Sons, with fresh chapters on Dhirubhai’s two sons—Mukesh and Anil—but without any critical references to the Ambanis and their connections with the Indian politicians who helped “make laws” for them.

Surajit Mazumdar, a professor of economics at the New Delhi-based Dr. B.R. Ambedkar University, said: “Public sector financial institutions supported Reliance’s early growth, and ICICI even became a shareholder of Reliance Industries before it became a public company in 1978. Through the 1970s and 1980s, the group had an exceptionally high success rate in getting various government approvals required at that time: industrial licences, import licences, monopolies and restrictive trade practices (MRTP) clearances, etc.”

“In the 1980s, Reliance’s actual productions of polyester and PTA [purified terephthalic acid] were much higher than its stated licences and installed capacity. In the case of polyester filament yarn and Polyester staple fibre, both industries which had other producers before Reliance’s entry, there were sharp rises in customs duties at more or less the same time as Reliance began their manufacturing,” he said.

The company’s policy has always been to enter a business sector at an enormous scale so that its cost price per unit of any product comes down. This it achieves by outbidding other contenders. However, in many instances, after it has secured the project, it has relied on renegotiating with the government to bring down its responsibilities and cost. That the company has had strong influence in the Union government helped it renegotiate deals.

Delhi Airport Metro

For example, the Delhi Airport Metro Express Pvt. Ltd (DAMEPL), a subsidiary of Reliance Infrastructure headed by Anil Dhirubhai Ambani, outbid Larsen & Toubro in the Delhi’s Airport Metro only to renege on its responsibilities later. Kumar P. Pratap, a civil servant with the Planning Commission, writes in one of his articles in Economic & Political Weekly: “The main reason for the private sector (Reliance Infrastructure Limited) exiting from the PPP [public-private partnership] project was that it was a loss-making proposition owing to actual traffic being much less than the projected traffic—17,000 passengers per day compared with the projected 42,500 per day. As a result, the expected non-fare revenue from advertisements, lease of commercial space built along the rail infrastructure, and from vending machines and retail outlets at the metro stations did not materialise.”

When it did not make profits, the group withdrew from the project citing technical problems and financial imprudence of the project. Consequently, the Delhi Metro Rail Corporation, a public entity, had to take over the line’s functioning to ensure its continuity and recover some of its investments. DAMEPL wants a complete restructuring of the project to make it financially viable after it violated the concession agreement by withdrawing from the project.

Power discoms

Similarly, the performance of the Anil Dhirubhai Ambani Group (ADAG)-run power distribution companies in Delhi has been far from satisfactory. As in the case of the Airport Metro line, ADAG bid aggressively to get the distribution licence in south and east Delhi. However, by claiming major losses, it has constantly been prodding the State government to increase the electricity tariff. This assumption was strongly contended by the previous Aam Aadmi Party-led government, which felt that private discoms have been fudging data to show losses.

In yet another case, NTPC took the Mukesh Ambani-led Reliance Industries Ltd (RIL) to the Bombay High Court in 2005 complaining that RIL was not honouring a contract to sell 12 million standard cubic metres a day (mmscmd) of gas for 17 years at $2.34 per unit to its Kawas and Gandhar expansion projects in Gujarat.

RIL officials maintained that the contract was not finalised, which NTPC refuted. Even while the legal battle was on, Murli Deora became the Petroleum and Natural Gas Minister. He finalised a gas allocation policy and fixed the price for gas from RIL’s KG basin at $4.20 per unit, which was much higher than what NTPC had been trying to enforce.

Oil and gas exploration

Reliance’s influence in the government was reinforced in public perception when a report of the Comptroller and Auditor General (CAG) indicted the state-owned Oil and Natural Gas Corporation (ONGC) for unnecessarily hiring a rig from RIL without bidding, leading to “an avoidable expenditure” of Rs.146.71 crore. In a report tabled in Parliament in August 2013, the CAG said the ONGC hired “Actinia” rig from RIL for six months in 2009 on the pretext that it was urgently needed to drill three wells. The CAG said that the actual use of the rig indicated that the hiring was not necessary. The CAG had in September 2012 criticised the ONGC for hiring a deep-sea drilling rig, Dhirubhai Deepwater KG-1 (DDKG-1), in May 2009 without calling for competitive bids and on untenable grounds in what seemed to be a move to directly benefit RIL.

“Reliance, considering the influence it has in the governments, practises no-risk capitalism. You get into a project only to renege on the contract later. And the government tries to save a private party by taking over its functions,” said Prabir Purkayastha of the New Delhi-based Delhi Science Forum.

In 2002, the Reliance group successfully acquired a cash-rich public sector unit, Indian Petrochemicals Corporation Ltd (IPCL), under the government’s disinvestment programme. This acquisition reinforced its position as a petrochemical giant. Even in this case, RIL bid at a 74 per cent premium to IPCL’s last traded price. Soon after the acquisition, the Securities and Exchange Board of India (SEBI), India’s capital market regulator, imposed a fine of Rs.11 crore on Reliance Petroinvestments (RPIL), a subsidiary of RIL, for insider trading in IPCL shares. SEBI said that RPIL bought 21,32,953 shares of IPCL for Rs.55.51 crore from February 27 to March 2, 2007, before IPCL’s interim dividend and merger with RIL.

It was reported that before RIL bid for KG basin rigs, it poached on high salaries many senior ONGC officials, who took with them the hydrological and geological data of the KG basin. This apparently helped RPIL to bid in a systematic manner. Reliance acquired a block in the KG basin long after it had been known as a potentially rich zone for extraction of oil and gas and where ONGC has been active since 1977.

In 2011, a full-time member of SEBI, K.M. Abraham, alleged in a letter to the Prime Minister’s Office that SEBI was under a lot of pressure from Finance Minister Pranab Mukherjee and his adviser Omita Paul to manage cases against Reliance and some other corporate groups. (The letter can be seen at http://www.scribd.com/doc/70646038/K-M-Abraham-s-Letter-to-PM.) He said prima facie investigation could establish an unlawful gain of Rs.500 crore by Reliance Industries, and the punishment could be three times that amount. However, he said that the then Chairman of SEBI, U.K. Sinha, wanted him to resolve the cases through “consent”.

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