Squabbling over $1.87? An open letter to Mr. Ambani

As you head to the courts brandishing a memorandum of understanding you said was signed between RNRL (when it was Global Fuel Management Services) and RIL way back in 2005 for D6 supplies at what now looks like a bargain basement rate, think how much the world of energy has changed since then, not to talk of the tectonic shifts that split Reliance down the middle in the meantime.

Just look around you at gas and LNG contracts in Asia. Major long-term LNG sale and purchase agreements -- arm's-length deals and far more concrete than yours -- have been brought back to the negotiating table over the past years for upward price revisions, long after the ink on the contracts had dried.

How many times has Russia choked off vital gas supplies to Ukraine in the dead of winter until the latter signed on the dotted line for higher rates?

Look at the fate of the Iran-Pakistan-India gas pipeline project. Iran is desperate to sell the gas. India is keen to buy it. But if they can't agree on the price, it ain't going to happen.

You are insisting on getting the eastern offshore gas at a rate barely above that dictated by the government under its age-old administered pricing mechanism. The APM makes state-owned cash cows like Oil and Natural Gas Corp. sell limited volumes of their gas output at less than $2/MMBtu to the priority power and fertilizer sectors, but we all know that era is drawing to an end. If the government wants its upstream companies to invest and to compete with the foreign players in the country, it has to give them a level playing field.

Mr. Ambani, you of all people, a billionaire on the Forbes list, understand the workings of a market economy. Why should a company sink billions of dollars to extract oil and gas from the depths of the oceans and then sell it below cost or for no profit? Would you sell electricity from your brand new power plants at a loss?

Even assuming for a minute that RIL had a preliminary agreement to sell the gas at $2.34/MMBtu to your proposed Dadri power plant, where is the facility? I am sorry, but the argument that the plant wasn't built because the gas contract did not materialize doesn't hold water.

And what of the Indian government? If it has gone to the extent of fixing the wellhead price of D6 gas for the next five years and even nominated buyers for all the initial volumes, citing its sovereign right over the country's natural resources, why do you imagine that it will stand by idly and let you take supplies at $2.34, even if the courts side with you?

Finally, think of how you and the rival Reliance companies look to the outside world -- like overgrown children fighting on a grotesque merry-go-round. It's time to get off, go back to serious business, and leave India's courts to deliberate far more important issues of the day. 

Yours sincerely,

A Bemused Observer