What nightmares could Mukesh Ambani possibly suffer? The elder brother in India's most famous industrialist family, and the de facto leader of a generation of Indian businessmen and women that will by any measure be seen by historians as a Golden Generation, you might think strolling a mile in Ambani's shoes would be a mighty pleasurable experience.
He is already India's richest man. A 21st century John D. Rockefeller who has made an unimaginable fortune from good, and some say ruthless, bets in oil. Last month the New York Times compared him to Mohandas Gandhi. And it was not in jest.
But it turns out that perhaps Ambani has become too successful. How long will the government of India be able to resist plundering the petrobillion bonanza built up by Reliance Industries Limited, the elder brother's business empire that includes all the major oil assets held by the Ambani empire?
Such a question might have seemed wildly off the mark only months ago. But the timing and the headlines are growing awkward. In April, Reliance quietly reported a handsome $975 million profit for the first quarter of the year -- and a massive $4.7 billion profit for the whole financial year.
At the same time, India has reported paying $8.7 billion in oil subsidies for 2007. The reckoning of most India watchers suggests that the country will have to cough up $18.1 billion in 2008 subsidies if oil prices average $100 this year -- and $29.2 billion if price hold where they are now.
Reliance's pot of cash is looking pretty tempting to India's boisterous politicians. It looks even more enviable to Indian Oil, Bharat Petroleum and Hindustan Petroleum, the triumvirate of state-run oil companies saddled with supplying everything from gasoline and diesel to LPG and kerosene to India's voracious consumers in return for a thankless, crippling loss every year.
Reliance is not obliged to supply Indian consumers. Instead, it plies an extremely profitable trade selling oil to the rest of us from its 600,000 b/d oil Jamnagar refinery on India's west coast.
It will open a second refinery, potentially doubling its license to print money overnight, later this year. How Ambani must wish now he had built those refineries a little further away from India's cash-strapped oil economy.
The word in the Indian press is that the government is listening carefully to demands from the Samajwadi Party that Reliance get a bill for a hefty windfall tax, and maybe even be handed a mandate to supply oil at unattractive prices to Indian buyers, just like it's state-run cousins.
And indeed the government must listen carefully to those demands that Reliance's warchest should be tapped for the good of the average Indian. Without its former allies in the Communist Party, Prime Minister Manmohan Singh is now depending on votes from the Samajwadi Party to get its controversial nuclear deal with the US through.
The stakes don't get much higher than the world Mukesh Ambani finds himself in this month. Indian oil minister Murli Deora said last week that his ministry does not have the power to levy windfall taxes on privately run oil giants like Reliance and Essar Oil.
"A decision on windfall tax can only be taken by the finance ministry, while the commerce ministry decides the EoU status," said Deora.
Hardly reassuring for Ambani.
As the original Rockefeller found out almost 100 years ago, when it comes to oil it is sometimes surprisingly easy to get too successful.
Hi Dave, This is a fantastic piece that weaves in an incisive analysis with an indepth take on the attempts by India's political establishments to "rely" on Reliance's cash kitty. Reliance that account for nearly 3.5% of India's GDP has always been an enigma. The comparison of Reliance's whole year profits to India's annual oil subsidy bill was an eye-opener. No wonder, there is a growing tribe of Reliance bete noirs.
It's not necessarily a gov't vs. Reliance story but rather a Anil Ambani's Reliance vs. Mukesh Ambani's Reliance story. The Samajwadi Party is basically acting on behalf of Mukesh Ambani's younger brother Anil who runs different Reliance businesses and is locked in a couple of corporate disputes with Reliance Industries Limited owned by Mukesh. The two brothers split up their dad's company in 2005.
Thanks Observer -- I have also heard the connection being made in the Indian media between the Samajwadi Party and Anil Ambhani. I'm not sure that it is a matter of public record, but it certainly makes for a heck of a soap opera between the Ambanis. From where you sit has Anil gone on the record with ties to Samajwadi (or vice versa)? I'm curious -- because that would be quite explosive from where I sit.